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Luxembourg Terminates 1929 Holding Companies Regime

by Ulrika Lomas, Tax-News.com, Brussels

04 January 2007


Following a previously announced decision by the European Commission, Luxembourg has terminated its 1929 holding company regime, although pre-existing publicly listed companies will continue to benefit from the regime for an additional four years.

The 1929 holding regime has been abolished effective from January 1, 2007. However, under the implementing legislation, pre-existing publicly listed companies will be entitled to continue benefiting from their current tax regime until December 31, 2010, irrespective of any share transfers that may occur within that period.

The 1929 regime exempted other qualifying companies from corporate income tax, withholding tax on its dividend payments and certain other Luxembourg taxes.

According to the EC, the preferential tax regime in favour of Luxembourg’s Exempt, Milliardaire and 1929 Financial Holding companies violates EC Treaty state aid rules by granting "unjustified tax advantages" to providers of certain financial services who set up holding structures in Luxembourg.

The Commission ordered the government of Luxembourg to dismantle the regime by the end of 2006, but has permitted a transition period allowing existing companies under the scheme to continue benefiting from it until 2010.

Tenaris, a leading global manufacturer of pipelines for the oil and gas industry, had previously sought clarification regarding the phase-out regime, pointing out that under Article 2, paragraph 3, of the EC's decision, transitional benefits would appear to terminate if all or part of the capital of such companies is transferred during the transition period.

A comprehensive report in our Intelligence Report series looking at Tax-Effective Global Manufacturing and Financing Structures is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report8.asp

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