European Union: Tax Consolidation Regime: Recent Court Decision With Subsequent Referral To The Court Of Justice Of The EU

Last Updated: 19 March 2019
Article by Hugues Henaff and Marie Bentley

OUR INSIGHTS AT A GLANCE

  • In Luxembourg, tax consolidation allows the consolidation of the respective tax results of each integrated company so as to be taxed globally, as if they were a single taxpayer.
  • Since 2015, the Luxembourg tax consolidation regime makes the distinction between the vertical consolidation where the results are consolidated at the level of an integrating parent company and the horizontal tax consolidation where the tax results are consolidated at the level of an integrating subsidiary company.
  • The horizontal tax consolidation was introduced following a ruling of the CJEU released in 2014 in respect of the Dutch tax consolidation regime. Based on this ruling, few Luxembourg companies requested the application of the horizontal tax consolidation regime retroactively as from 2013.The benefit of such regime was however denied by the tax authorities and the taxpayers lodged appeals against the tax authorities' position.
  • In the context of the litigation, legal technical issues have arisen about the EU compliance of the "old" tax consolidation regime, the requirement to end an existing vertical tax consolidation (with a potential retroactive effect if the 5 year period is not met) in order to benefit from the horizontal tax consolidation and the timing for requesting the application of the horizontal tax consolidation.
  • All of them have been referred to the CJEU in order to be clarified and could have an impact on the current Luxembourg tax consolidation regime.

On 29 November 2018, the Luxembourg Administrative Court (the "Court") referred several questions to the Court of Justice of the EU ("CJEU") in respect of the Luxembourg tax consolidation regime.1 This case is interesting and worth delving further into it as it could result in an extension, or a confirmation, of the scope of the tax consolidation in Luxembourg in the near future.

Aim of the Luxembourg tax consolidation regime

In Luxembourg, tax consolidation is allowed for corporate income tax ("CIT") and municipal business tax ("MBT") purposes. The purpose of the tax consolidation is to allow Luxembourg companies of the same group (or of some of them only) to opt, under specific conditions, for a sort of consolidated taxation, without jeopardizing the patrimonial autonomy of the relevant companies under company law.

Tax consolidation allows the consolidation of the respective tax results of each integrated company prepared on a standalone basis so as to be taxed globally, as if they were a single taxpayer. Thus, losses of some companies can be offset with profits made by others. Tax consolidation scheme constitutes, in this respect, a departure from the tax law rule prohibiting any compensation or transfer of income between related companies. It is therefore clear that, in the spirit of the legislator, looking for a fiscal aim, namely the fiscal neutrality of a business structuring, is inherent to the implementation of a tax consolidation regime. From an anti-abuse perspective, the fact that tax consolidation is requested for the main purpose or one of the main purposes of obtaining tax advantage offered by such a regime, will never defeat the object or purpose of the applicable tax law which is precisely the granting of such a tax advantage/incentive.

The current Luxembourg tax consolidation regime

Luxembourg tax law allows groups of companies to opt for either a "vertical" or a "horizontal" tax consolidation.

  • Vertical tax consolidation is available where a fully taxable Luxembourg resident company or a Luxembourg permanent establishment of a foreign company subject to a tax comparable to the Luxembourg CIT, called the integrating parent company, holds, directly or indirectly, at least 95% of the share capital in one or more Luxembourg resident fully taxable companies or holds a Luxembourg permanent establishment of a foreign company which is subject to a tax comparable to the CIT, the integrated companies.
  • Horizontal tax consolidation is available to subsidiaries held at least at 95%, directly or indirectly, by the same non-integrating parent company. Integrating subsidiary and integrated subsidiaries can be Luxembourg resident fully taxable companies or a Luxembourg permanent establishment of a foreign company which is subject to a tax comparable to the Luxembourg CIT. The non-integrating parent company can be either a fully taxable Luxembourg company, a Luxembourg permanent establishment of a foreign company subject to a tax comparable to the Luxembourg CIT, a foreign company resident of another EEA country which is subject to a tax comparable to the Luxembourg CIT or a permanent establishment located in a EEA country, subject to a tax comparable to the Luxembourg CIT, of a foreign company which is subject to a tax comparable to the Luxembourg CIT.

Whereas in the vertical tax consolidation, parent company(ies) of the integrating company is/are not party(ies) to the tax consolidation, the agreement of the non-integrating parent company of the integrating company and a 95% shareholding threshold between them are required under the horizontal consolidation. These are the only differences between the two tax consolidation forms. From a tax point of view, in both cases, the tax results of the integrated companies are consolidated at the level of an integrating company (whether as parent or subsidiary) and the tax results of the "non-integrated" parent companies will not be affected. The integrating parent company (vertical consolidation) and the integrating subsidiary company (horizontal consolidation) are thus in the same situation: results of the integrated companies are consolidated at their level.

The Luxembourg tax law does not allow a company to simultaneously be part of more than one tax consolidated group. An integrated group is defined as either a group composed by the integrating parent company and the integrated company(ies) or composed by the integrating subsidiary company and the integrated company(ies).

When the shareholding is held indirectly, it is required that the intermediary companies through which the integrating or non-integrating parent company hold 95% of the share capital of the company to be integrated in the tax consolidation, are corporate companies fully subject to an income tax comparable to CIT.

To avoid any abuse, special rules apply to the deductible losses of companies that opt to be fiscally integrated. The carry forward of tax losses, realized before a tax consolidation is put in place, is limited to the aggregate amount of positive income realized during the tax consolidation by the company that originally incurred the losses. Following the termination of the tax consolidation, tax losses generated during the tax consolidation can only be used by the integrating entity.

Tax consolidation is only available upon filing a written request with the Luxembourg tax authorities, filed by the integrating company, the integrated entities subject to the tax consolidation as well as by the non-integrating parent company in case of horizontal tax consolidation. Tax consolidation is effective retrospectively as of the beginning of the fiscal year during which the tax consolidation was requested. The option must be exercised for at least five subsequent fiscal years. If conditions are not fulfilled during the full period of 5 years, the benefits of the tax consolidation are lost, retroactively.

Footnotes

1 Case n°40632C

To view the full article, please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions