The Luxembourg Parliament has adopted, on 13 May 2014, the law (bill 6556) amending some tax provisions concerning the area of so-called “exit tax” in order to make the exit taxation compliant with EU law. The European Court of justice (ECJ) held in the National Grid case (C-371/10) that EU law precludes legislation of a Member State which prescribes – such as previous Luxembourg law – the immediate recovery of tax on unrealised capital gains relating to assets of a company transferring its place of effective management to another Member State at the time of the transfer.
In accordance with the ECJ decision, the new regime lays down the possibility to resident corporate entities which intend to transfer their statutory seat and place of effective management to another Member State of the European Economic Area (EEA) to opt for a deferral of the tax on unrealised capital gains caused by the transfer until the actual disposal of the transferred assets. The company may now opt to postpone the payment of the tax, without any late interest charge (on the deferred tax amount) and without guarantee deposit, provided that it remains the owner of the assets transferred and a resident of an EEA Member State.
Companies will have to provide annually documentation proving the continued ownership of the assets to the tax authorities. The required forms have yet to be issued by the tax administration.
Furthermore, to the extent that the host Member State does not take into account the capital losses incurred on the realised assets after the transfer of the company or the permanent establishment, that losses will be deductible in Luxembourg.