Luxembourg Administrative Tribunal rules on the tax treatment of share class redemptions

On 27 January 2023, the Administrative Tribunal ruled on the Luxembourg tax treatment of the redemption of a class of shares by a Luxembourg Company.

The Tribunal decided that the redemption is to be considered as a sale of shares, not as a dividend distribution. However, when the redemption price exceeds the fair market value of the redeemed share class, the excessive amount should be qualified as a hidden dividend distribution (which is, in principle, subject to 15% Luxembourg dividend withholding tax) if the excessive price is not justified by economic reasons.

In this newsletter, we provide a clear and concise overview of the judgment of the Tribunal and analyse its potential implications. However, it remains to be seen if the judgment will be appealed before the Administrative Court.