On 9 January 2015, the Luxembourg direct tax authorities issued Circular L.I.R. n° 14/4 (the "Circular"), which clarifies the tax treatment of revenues realized by Luxembourg partnerships established either in the form of an ordinary or a special limited partnership (collectively, the "LPs").

The guidance provided by the Circular is most welcome as it confirms the full tax neutrality of LPs set-up as alternative investment funds ("AIFs"), provided that the general partner is not a company holding 5% or more in the partnership. Further, the Circular clarifies that neither the size of the assets nor the disposal of certain elements therefrom in a relatively short period of time does per se constitute a business activity for Luxembourg tax purposes, which may be of high importance for LPs without any special status and not set-up as AIFs.