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Parent-Subsidiary Directive: News for Taxpayers?
The Luxembourg direct tax authorities have published a circular, the aim of which is to deal with the impact on Luxembourg internal law of the recast of the Directive on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (so-called 'parent-subsidiary Directive'). Taxand Luxembourg presents the content of the Circular, which, on one hand, is positive, as it clarifies the conditions of the Luxembourg participation regime, pending the implementation of the new Directive into Luxembourg law, but, on the other hand, does not appear to have any significant impact for taxpayers.
Over the past years, the parent-subsidiary Directive dated 23 July 1990, which was designed to eliminate tax obstacles in the area of profit distributions between groups of companies in the EU, was amended several times, in order to broaden its scope and improve its conditions. This was achieved by a means of updating the list of companies that the Directive covers, relaxing the conditions for exempting dividends from withholding tax (reduction of the participation threshold) and eliminating double taxation for subsidiaries of subsidiary companies.
Given the several changes introduced by the various amending Directives over time, a recast of the parent-subsidiary Directive was published; (which entered into force on 18 January 2012, hereafter referred to as the "new Directive"). The new Directive has abolished and replaced the former parent-subsidiary Directive.
Taxand Luxembourg discusses the content of the Circular in greater detail
Based on the circular, even though the articles of the Luxembourg law mentioned above refer to article 2 of the amended Directive 90/435/CEE of 23 July 1990, we now refer to article 2 of the new Directive to check whether the conditions of these articles are fulfilled.
This circular is positive as it clarifies the conditions of the Luxembourg participation regime, while pending the implementation of the new Directive into Luxembourg law. It is important to note that since the new Directive is a recast rather than a real amendment of previous amending Directives, the reference to the new Directive will not have any significant impact for taxpayers.
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