On 15 March 2013, the Luxembourg Government submitted to Parliament bill of law n°6556. The purpose of the bill of law is to amend some of the Luxembourg provisions regarding enterprise migration considered as not compliant with EU law.
According to the European Court of Justice (“ECJ”), imposing taxes on unrealised capital gains at such time and for the sole reason that a company transfers its headquarters to another Member State of the European Economic Area (“EEA”) is a restriction to freedom of establishment. The determination of the amount of tax due at the time of such transfer can be justified by the preservation of the allocation of taxing powers between Member States. Nonetheless, the ECJ stated that the immediate recovery of the tax is disproportionate, and that a deferred recovery of tax would achieve this preservation.
The current Luxembourg tax regime does not provide for an automatic possibility of tax deferral on latent capital gains which are deemed realised upon migration.
The bill of law intends to:
- amend Article 38 Luxembourg income tax law (“LIR”) so that taxpayers could opt for a deferred payment of taxes upon a migration; in such a case, the capital losses realised by the taxpayer after its migration would reduce the Luxembourg taxable base if these capital losses are not taken into account in the new host country;
- abolish Article 44 LIR, which provides that the transfer of an asset between Luxembourg companies owned by the same taxpayer could be done at book value, avoiding any taxation on unrealised capital gains, because the Article was not available for a transfer abroad; and,
- amend Article 54 LIR in order to extend the scope of the roll-over relief upon realisation of eligible assets and reinvestment of sale proceeds; this rollover would also apply in situations where the reinvested asset is allocated to a branch located outside Luxembourg but within the EEA.