Administrative Court, 23 November 2017

Decision of the Luxembourg Administrative Court, No. 39193C, 23 November 2017

In 2008, a Luxembourg resident company redeemed its own shares, representing the balance of the shares owned by a shareholder. In 2012, the share capital of the company was reduced to cancel the redeemed shares. The Luxembourg tax authorities considered that the redemption by the company of the participation of a shareholder not followed by the immediate cancellation of such shares should not be treated as a partial liquidation of the company within the meaning of Article 101 of the Luxembourg Income Tax Law ("LITL") and should be subject to the dividend withholding tax at a rate of 15%.

Applying an economic approach, the Luxembourg Administrative Court held that the net proceeds received by a shareholder upon the redemption by the company of all or part of his/her shares without a corresponding cancellation of the shares so redeemed should not qualify as income from capital (i.e. dividend) falling under the scope of Article 97 (1) LITL, but as income from the...