Luxembourg: Refund claims for withholding tax on dividends, new opportunity

19 December 2018

Luxembourg’s high court issued a decision that rejects what had been the administrative practice concerning the limitation period allowed for filing refund claims with respect to tax withheld on dividend payments. The court overturned the existing administrative practice, and reversed a decision of the first-tier administrative tribunal.

In Luxembourg, a tax refund claim must be filed by the end of the year following the year in which the events giving rise to the claim occurred. The high court clarified that a claim for the refund of dividend withholding tax arises only after the end of the 12-month holding period (a pre-condition for the Luxembourg withholding tax exemption). The refund claim therefore is required to be filed by the end of the year following the year in which this holding period ended.

Luxembourg withholding tax exemption

Dividend distributions from certain Luxembourg companies may be subject to 15% withholding tax, unless an exemption under Luxembourg law applies or unless a reduced rate or tax exemption applies under an income tax treaty. No withholding tax is due on interest or royalty payments in Luxembourg.

A full exemption from dividend withholding tax under Luxembourg domestic law is available, provided the beneficiary has maintained, as of the date of the dividend distribution and for an uninterrupted period of at least 12 months, a direct participation of at least 10% in the share capital or at least an acquisition value (price) of €1.2 million in the distributing Luxembourg subsidiary.

The 12-month holding period can be met prospectively, if the beneficiary commits to maintain a shareholding of at least 10% or having a value of €1.2 million going forward during an uninterrupted period of at least 12 months. This commitment can be made in the withholding tax return that is required to be filed within eight days of the profit distribution. If no specific date is indicated for the dividend distribution, the day following the board decision declaring the dividend is decisive. Within eight days, withholding tax must be levied and paid to the Luxembourg tax authorities. The distributing company can be itself liable for the withholding tax.

For dividend distributions during the first 12 months after acquisition or incorporation, taxpayers generally claim the withholding tax exemption and commit to maintain a shareholding of at least 10% or €1.2 million going forward.

KPMG observation

The scope of the withholding tax exemption in Luxembourg is generally viewed as being broad and generous—not only EU-resident parent companies may benefit, but also parent companies resident in a treaty country such as the United States, Switzerland, Norway, Iceland and Liechtenstein.

The high court’s decision means that in instances when the 12-month holding period for the dividend withholding exemption has not yet lapsed, taxpayers now may have an additional year for filing a refund claim relating to withholding tax on certain dividend distributions. Companies currently facing a similar tax controversy need to consider safeguarding their rights to a refund and filing a refund application. The court’s decision was issued in September 2018. In general, taxpayers have three months to appeal administrative decisions.

Read a December 2018 report prepared by the KPMG member firm in Luxembourg


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