The Luxembourg tax regime for IP revenues - Background of the case

In the framework of the Lisbon strategy for growth and employment in the EU, the Grand-Duchy of Luxembourg has adopted an article 50bis in the Income Tax Act 1967 ("Loi concernant l'impôt sur le revenu du 4 décembre 1967" or "L.I.R.") at the end of 2007.

On the basis of this regime (the " 50bis Regime"), Luxembourg undertakings and Luxembourg branches of foreign companies can benefit from an exemption of 80% on revenues (royalty fees...) derived from all registered intellectual property ("IP") rights (patents, trademarks, designs and domain names) as well as from copyright protected software, which have been established or acquired after 31 December 2007. The exemption brings the effective tax rate for such revenues to approximately 5.85%.

In the case at hand the Luxembourg tax administration refused to grant the exemption for revenues of company [X] derived from unregistered designs. The tax administration considered that only designs for which an application has been filed, are eligible for the 80% exemption, as the filing of an application would allow an objective verification of the existence of the design rights. Company [X] challenged this refusal before the Luxembourg Tribunal administratif, the Luxembourg administrative court of first instance, as Article 50bis L.I.R. concerns designs in general and does not specify whether designs must be registered (or not).

Judgment of the Tribunal administratif - Comment

On 6 November 2013 the Tribunal administratif handed down a judgment in this case, which was published in February 2014. The Tribunal administratif held that nothing in Article 50bis L.I.R. prevents to grant the 80% exemption to revenues derived from designs for which no application was filed. The Tribunal administratif based its decision on the following arguments:

  1. it underscored that the mere making available of a design to the public can prevent a later similar design from being registered for lack of novelty and individual character within the meaning of Article 3.3 of the Benelux Convention on Intellectual Property. Hence, the Tribunal administratif concluded that designs can be acquired as from the moment that the design has been made available to the public and that no registration (nor an application) is necessary to benefit from the 50bis Regime.
  2. it further referred to Article 1.2.a) of Regulation (EC) No 6/2002 on Community designs conferring protection to unregistered designs as from the making available to the public.

Argument (i) is rather weak and opens the door to legal uncertainty, as a similar reasoning can be used in the context of other eligible IP rights. For example, a mere commercial use of a sign (e.g., as a trade name) could block the trademark registration of the same sign by another person. Furthermore, this argument seems difficult to square with its earlier judgment of 23 June 2013 (appeal is pending), where the Tribunal administratif held that trademarks rights were not established by the mere commercial use of the sign but strongly suggested that they are on the moment of registration.

The Tribunal administratif should have based its decision exclusively on argument (ii) since Article 1.2.a) of Regulation (EC) No 6/2002 of 12 December 2001 on Community designs is the only legally valid basis to contend that design rights are acquired without being registered.

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