LUXEMBOURG Law and Practice Contributed by: Romain Tiffon and Marie Bentley, ATOZ Tax Advisers
5.4 Tax Implications of Change of Control Luxembourg tax law does not impose a standalone change of control tax, nor does a change in the own - ership of a company’s parent entities – no matter how high in the chain – trigger any Luxembourg tax or reg - istration duty on the Luxembourg entity itself. There is: • no transfer tax on the sale of shares in a Luxem - bourg company (except where the company is tax‑transparent and owns Luxembourg real estate, where the transaction can be assimilated to a direct transfer of real estate and may trigger regis - tration duties or tax consequences in Luxembourg); • no stamp duty or capital duty on indirect transfers; and • no tax triggered simply because the ultimate ben - eficial owner changes. This applies equally where the disposal occurs far up the chain in a foreign (non‑Luxembourg) holding structure. No TP or exit tax is triggered solely due to a share - holder change. Exit taxation applies only if assets or functions are transferred out of Luxembourg – not when shares are transferred. While not “change of control taxes”, Luxembourg applies abuse of law and Mantelkauf doctrines to pre - vent the use of loss‑making companies where they are effectively acquired for their tax attributes. These rules may deny loss being carried forward after a change of control combined with a change of activity. This is not a tax on the transfer itself, but a restriction on using tax attributes following certain reorganisations. 5.5 Formula-Based Income Attribution Luxembourg tax law does not provide any specific rules – beyond the general arm’s length principle gov - erning transactions between associated enterprises – for determining the taxable income of foreign‑owned Luxembourg affiliates engaged in the sale of goods or the provision of services. 5.6 Deductibility of Intra-Group Management and Administrative Charges In Luxembourg, there is no special statutory provision governing the deductibility of payments made by local
affiliates to foreign group companies for management or administrative services. Instead, deductibility is assessed under the general arm’s length principle, which is firmly embedded in Luxembourg tax law and governs all intra-group transactions. A Luxembourg company may deduct management or administrative fees paid to a foreign affiliate provided that: • a real service is performed (ie, the service provides economic or commercial value to the Luxembourg entity); • the amount charged is arm’s length, demonstrated through – (a) appropriate transfer pricing documentation, (b) allocation keys reflecting actual functions per - formed, and (c) evidence that no duplication of services exists; and • the expense is incurred wholly and exclusively for business purposes, consistent with general deductibility rules. 5.7 Restraints on Related-Party Borrowing Related-party borrowings by foreign-owned local affiliates paid to non-local affiliates are subject to the various interest deduction rules described under 2.5 Deduction of Interest and the general deductibility rules. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions Luxembourg‑resident companies are subject to cor - porate income tax (CIT) on their worldwide income, meaning that foreign‑source income is not automati - cally exempt. Double tax treaties concluded by Lux - embourg may, however, prevent Luxembourg from taxing foreign-source income. If not exempt under a double tax treaty, foreign-source income of local cor - porations is included in the Luxembourg taxable base and thus subject to CIT.
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