Answer ... Fiscal consolidation is allowed for corporate income tax (CIT) and municipal business tax purposes, but not for net wealth tax purposes. Domestic provisions allow groups of companies to opt for vertical or horizontal tax consolidation. The consolidated companies are bound for a five-year period. A company cannot simultaneously form part of more than one tax consolidated group.

Vertical tax consolidation is available where a fully taxable Luxembourg resident corporation or a Luxembourg permanent establishment of a foreign company subject to a tax comparable to the Luxembourg CIT holds, directly or indirectly, at least 95% of the share capital in one or more Luxembourg resident fully taxable corporations, or holds a Luxembourg permanent establishment of a foreign company which is subject to a tax comparable to the Luxembourg CIT. Both the integrating parent company and the integrated subsidiaries are required to begin and end their financial year on the same date.

Horizontal tax consolidation is available to subsidiaries that are held at least at 95%, directly or indirectly, by the same non-integrated parent company. The integrating subsidiary and the integrated subsidiaries can be Luxembourg resident fully taxable corporations or Luxembourg permanent establishments of a foreign company which is subject to a tax comparable to the Luxembourg CIT. The non-integrated parent company can be:

• 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 European Economic Area (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.

Even though the parent company is not integrated, the requirement to hold a minimum 95% shareholding in the integrated subsidiaries still applies. Both the integrating subsidiary and the integrated subsidiaries must begin and end their financial year on the same date.

When the shareholding is held indirectly, the intermediary companies through which the integrating or non-integrating parent company holds 95% of the share capital must be corporate companies fully subject to a tax comparable to the CIT.

Tax consolidation is available only upon filing a written request with the Luxembourg tax authorities. The fiscal consolidation becomes effective retrospectively as of the beginning of the fiscal year during which the consolidation was requested. The option must be exercised for at least five tax years.