The bill of law n° 6847 (the “Bill of law”) was submitted to the Parliament on 5 August 2015. In addition to the changes of the common system of taxation applicable to parent companies and subsidiaries of different Member States (see our last Newsletter which dealt with this issue), the Bill of law encompasses several measures including a significant amendment of the current tax consolidation regime, an extension of the deferral tax payment in case of outbound migration of seat of a resident company.

  1. Proposed changes to the current Luxembourg tax consolidation regime

The current regime of tax consolidation in Luxembourg, as provided for by article 164 bis ITL, sets forth that the integrated group can only be formed by a parent company (resident or a permanent establishment of a foreign company) and the subsidiaries held directly or indirectly by the parent company. This results in the offset of the income of the integrated subsidiaries against the one of the parent company. This is commonly known as “vertical tax consolidation”.

The Bill of law proposes to enlarge the scope of companies that may apply for the tax consolidation regime. From now on, the integrated group can be formed by integrated companies without the common parent company. Thus, income of the integrated group will be offset against each other at the level of a member of the integrated group or “Integrating Subsidiary company” instead of at the level of the common parent company. This opportunity, thus, would lead to a “horizontal tax consolidation”.

The horizontal tax consolidation may be schematized as follows:

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Conditions, as provided for by the Bill of law, are to be complied with pertaining to the residency and the subjection to tax of the concerned parties as well as the shareholding level between them.

2) Extension of tax deferral in case of outbound migration of seat of a Luxembourg company

For the time being, upon outbound migration of seat of a resident company or of a Luxembourg permanent establishment of a foreign company, the tax deferral on unrealized capital gains (or “exit tax”) is granted if certain conditions are met. Among those, the location of the host country must be situated in the European Economic Area.

The Bill of law proposes to extend the scope of the benefit of said tax deferral to the cases where the host country has concluded with Luxembourg a bilateral or multilateral agreement relating to tax information exchange that complies substantially with article 26, paragraph 1 of the OECD model for tax treaty.

3) Entry into force

The extension of the tax deferral in case of outbound migration of a resident company or a permanent establishment should be applicable for the tax year 2016.

The other measures of the Bill of law and, in particular, those relating to the new tax consolidation regime should be applicable for the tax year 2015.