By Paloma Schwarz Martínez
On the occasion of the 2016 budget announcement, the Luxembourg government presented the following tax changes affecting multinational corporations:
Repeal of the intellectual property box regime
Since 2008, Luxembourg tax law has offered a tax incentive consisting of an 80 percent exemption from corporate income tax for qualifying income and capital gains derived from certain types of intellectual property, such as software copyrights, patents, trademarks, service marks, domain names, designs and models. This has resulted in an effective tax burden of approximately 5.8 percent.
Moreover, as from 1 January 2009, a 100 percent exemption from net wealth tax (NWT) has been applied to qualifying IP rights.
Following agreement on a modified nexus approach for IP regimes at both the OECD and the EU level, Luxembourg has decided to abolish the patent box regime as of 1 July 2016, and the NWT as of 1 January 2017. Luxembourg has kept open the option of introducing a new regime in line with the modified nexus approach, which, broadly speaking, requires a substantial R&D activity to be undertaken by the taxpayer benefiting from such a regime.
A transitional regime will apply starting from 1 July 2016 and ending on 30 June 2021. Consequently, taxpayers that already benefit from the IP box regime will remain entitled to the IP box regime until 30 June 2021.
New entrants will be permitted until 30 June 2016, provided that qualifying IP rights are not acquired directly or indirectly from related parties after 31 December 2015, unless the IP rights already qualified for an IP box regime at the time of the acquisition. Tax neutral transfers, e.g., through a merger or contribution of IP assets, are deemed to constitute an acquisition on the date of the reorganization. IP rights acquired from a related party after 31 December 2015 and not qualifying for an IP box regime at the time of the acquisition will only benefit from the IP box regime until 31 December 2016.
Finally, the bill implements a spontaneous exchange of information mechanism on IP structures in force after 6 February 2015.
Abolition of the minimum corporate tax and modification of the net wealth tax
To make Luxembourg’s minimum tax rules compliant with EU law, the government proposes to abolish the minimum corporate tax as of 2016 and to replace it with a minimum NWT
The proposed minimum NWT regime covers resident entities, such as securitization and SICAR companies, SEPCAVs and ASSEPs.
It applies a fixed tax of 3.210 EUR if the sum of fixed financial assets, transferable securities, and cash exceeds 90 percent of the company’s gross assets and 350.000 EUR. In cases where a company does not fulfill the aforementioned conditions, a variable minimum NWT between 535 to 32.100 EUR applies, depending on the total balance sheet.
Furthermore, the total minimum NWT due by Luxembourg entities belonging to a tax group is capped at 32.100 EUR.
In addition, the 0.5 percent of NWT rate will remain applicable upon the total net assets of up to 500 Mio EUR. For a NWT base of more than 500 Mio EUR, a 0.05 percent NWT rate will be applicable on the part exceeding 500 Mio. EUR.
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