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Tax changes for Multinationals in 2011


The law of 17 December 2010 introduces some tax measures which aim at restoring budgetary balance. Another law of the same date implements the EU's UCITS (Undertakings for Collective Investment in Transferable Securities) IV Directive into Luxembourg law and introduces several positive tax measures for investment funds and management companies. Taxand Luxembourg discusses the measures affecting Luxembourg based entities and the opportunities they may create.

Minimum taxation for SOPARFIs
A minimum corporate income tax of EUR1500 is introduced for unregulated collective undertakings for which the sum of fixed financial assets, transferable securities and cash at bank represents more than 90% of total assets. Entities that perform activities subject to a business license or requiring an approval by a supervisory authority (like investment funds) are out of the scope of this minimum tax. The entities concerned are thus SOPARFIs with mainly a holding activity. There are a number of points that need clarifying in the law and Taxand Luxembourg will be working on these with the relevant authorities over the next months.

Solidarity surcharge increased to 5%
The solidarity surcharge due by companies is increased to 5% from 4%. This means that the global tax rate for companies (i.e. Corporate Income Tax + Municipal Business Tax) is brought from 28.59% (current rate) to 28.80% as of 2011.

Investment tax credit increased
The 12% investment tax credit ("bonification pour investissement compl?mentaire") is raised to 13%. This tax credit is available for investments in specific tangible assets (excluding buildings). The tax credit on new investments ("bonification pour investissement global") is raised from 6% to 7% for investments up to a ceiling of EUR150,000 and from 2% to 3% for investments exceeding EUR150,000.

Energy saving investments
The depreciation rules applicable to energy saving investments are amended in order to spur this type of investment. For this purpose, the maximum special depreciation is increased from 60% to 80%.

Tax deductibility of exit payments limited
Exit payments (so-called "golden parachutes") are now only tax deductible up to an amount of EUR300,000.

Non-resident investors are no longer taxable in Luxembourg on capital gains on significant (i.e. > 10%) shareholdings in UCIs
As of 2011, capital gains realised by non-residents on the sale of shares in SICAVs/SICAFs/SIFs will no longer be taxable in Luxembourg. So far, taxation could occur in case of a sale of a shareholding of more than 10% within 6 months following the acquisition of the shares, to the extent there was no treaty granting the exclusive taxation right to the country of the investor. In practice, this was a very unlikely pattern. However, with the expected rise of "Master-feeder" fund structures in UCITS IV, there was an increasing concern, which now has been addressed.

Management Company or central administration in Luxembourg does not create a Luxembourg tax residence of non-resident UCIs
The UCITS (Undertakings for Collective Investment in Transferable Securities) IV Directive introduces a full passport for UCITS Management Companies, which allows a UCITS established in one EU Member State to be managed by a Management Company in another Member State.

Based on the place of effective management criteria, often used to determine tax residence, having a UCITS established in one country, with its Management Company established in Luxembourg, may create a residence of the UCITS in the country of the Management Company. In order to remove this tax barrier to the management company passport, the law introduces a new article, which provides that non-resident UCIs will be exempt from income and wealth taxes in Luxembourg, should they have their place of effective management or their central administration in Luxembourg.

Exchange Traded Funds become exempt from subscription tax
Exchange Traded Funds ("ETFs") are now exempt from the 0.05% subscription tax (taxe d'abonnement) currently levied on their Net Asset Value.

Multi-employer pension pooling vehicles become exempt from subscription tax
Multi-employer pension pooling vehicles are now also exempt from the 0.05% subscription tax. So far, this exemption was applicable only to Specialised Investment Funds and did not apply to funds, set up under the Law of 20 December 2002 (the exemption applied only to single-employer vehicles).

Taxand's Take

The above mentioned changes will create new tax costs that call for your attention and management. Resident and non-resident operators should carefully consider all of the amendments and assess their implications.

Your Taxand contact for further queries is:
Keith O'Donnell
T. +352 2694 0257

Taxand's Take Author