ATOZ Insights - August 2023


Summer is already in full swing, so the time has come to provide you with a few insights on what has happened in Luxembourg and abroad in the past few months.

On 28 March 2023, a new draft law was released in order to simplify and modernise the rules governing the direct tax procedure in Luxembourg. We provide a commentary of the main amendments proposed by the government and some of the shortcomings of the current direct tax procedure.

A protocol amending their DTT was signed by Luxembourg and Germany on 6 July 2023. We provide an overview of the main changes for corporate taxpayers, investment funds and cross-border workers, which would generally apply as from 1 January 2024.

On 30 March 2023, the Administrative Tribunal ruled that the Luxembourg tax authorities were right to consider it as abusive for a company to use its losses carried forward generated on its shareholding activity to compensate a short-term gain realised upon the sale of a real estate asset, which was acquired as part of a newly launched activity (management of real estate). We analyse the decision of the Tribunal and assess the position taken, particularly with regard to the Mantelkauf doctrine.

On 14 June 2023, the Administrative Tribunal ruled on the redemption immediately followed by the cancellation of classes of shares and decided that the Luxembourg tax authorities were right to confirm, in the case at hand, the existence of an abuse of law. We analyse the grounds on which the Tribunal considered the existence of an
abuse and its practical implications.

In view of the recent change in the presidency of the Council of the EU, we provide an overview of the state of play of various EU corporate tax initiatives such as the “Unshell” Proposal and the initiative aiming to tackle the role of so-called “enablers” called the “SAFE” Proposal, as well as the “DEBRA” Proposal to address Debt-Equity bias and the “BEFIT” initiative aiming to introduce a common set of rules for EU companies to calculate their taxable base and an allocation of profits between EU countries, based on a formula. We also assess their chances of succeeding in the near future.

Still at EU level, on 19 June 2023, the European Commission published the so-called “FASTER” Directive proposal to tackle the current burdensome withholding tax refund procedures for cross-border portfolio investors in the EU and, at the same time, the risks of tax abuse related to refund procedures. We describe the implications and
downsides of such proposal. 

On 27 April 2023, an important decision was issued by the CJEU striking down a German law according to which a Specialised Investment Fund existing under the laws of Luxembourg is considered partially liable for corporate income tax, whereas resident comparable vehicles are exempt from such tax. We provide you with an analysis of
this decision and assess its practical implications.

Further to the QM case of the CJEU concerning the VAT treatment of the provision of company cars, the Luxembourg VAT authorities issued a new circular mainly to give details on the determination of the taxable basis that should be subject to VAT when employers provide company cars to their employees. We detail the content and the potential impact of this circular.

Finally, the regulatory landscape in both Europe and Luxembourg underwent significant developments in the first half of 2023, in particular the ELTIF 2.0. and MiCA Regulations as well as the Luxembourg law modernising the legal framework pertaining to funds. We provide you with a description of these various developments.

We hope you enjoy reading our insights.