Draft Law On Exit Taxation

On March 15th 2013, a draft law on the taxation of the latent gains in case of transfer of an enterprise or a permanent establishment outside Luxembourg (the "Draft Law") was submitted to the Luxembourg Parliament.

The Draft Law provides for new rules on exit taxation

The Draft Law is a response to the infringement process launched by the European Commission against Luxembourg about the exit taxation applicable in Luxembourg. The European Commission recognises the right to a Member State to tax any capital gain with respect to a period during which the taxpayer was resident in Luxembourg or the assets were located in Luxembourg but the tax should not be immediately payable upon the transfer of residence or assets out of Luxembourg. Currently, taxpayers have the possibility to request a deferral of the exit tax but the conditions provided for in the law were viewed by the European Commission as too severe. The Draft Law provides for new rules on exit taxation and intends to amend the following provisions of the income tax law of December 4th 1967 ("LITL") and the General Tax Law ("Abgabenordnung") of May 22nd 1931:

The current Article 38 LITL provides that the transfer of an enterprise or permanent establishment outside Luxembourg by a non-resident is taxable, i.e. the transfer is deemed to be a disposal of the enterprise at fair market value. The LITL was silent on the tax treatment applicable to resident taxpayers. In order to eliminate this different tax treatment between resident and non-resident taxpayers, the Draft Law intends to amend Article 38 and extend it to resident tax payers. The amendment to §127 Abgabenordnung provides that taxpayers transferring their enterprise or permanent establishment outside Luxembourg to a Member State of the...

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