Decision no. 46067C of the Administrative Court dated 31 March 2202
The Luxembourg Administrative Court which upheld last year judgment of the Administrative Tribunal (case n°42417 dated 11 May 2021) decided that contributions made by a Luxembourg company to the Account 115 of its Luxembourg subsidiary are not to be taken into account for the purpose of the participation exemption regime with regard to the EUR 1.2 million minimum acquisition price of the participation requirement to be met according to Article 147 of the Luxembourg Income Tax Law (LITL) in order to benefit from a withholding tax exemption on dividends.
Grounds of the Decision
The Administrative Court considered that the notion of “acquisition price” should be understood as excluding any expense made by a Luxembourg company which do not increase the number of shares or the nominal value of existing shares in the Luxembourg subsidiary.
As the contribution to the Account 115 was made with no consideration and was not concomitant to the acquisition of the shares in the Luxembourg subsidiary, the Administrative Court decided that, in the absence of supporting documentation demonstrating otherwise, there was no sufficient link between the contribution into the Account 115 made by the Luxembourg company and the share capital of the Luxembourg subsidiary to evidence that such contribution increased the acquisition price of the participation in the subsidiary.
Impact of the Decision
The impact of the decision of the Administrative Court is to be limited to cases where a shareholder does not hold at least 10% of the share capital of its qualifying subsidiary and would rely on the EUR 1.2 million acquisition price requirement for dividend / EUR 6 million for capital gains to benefit from the Luxembourg participation exemption regime.
