DTT With Germany - Interpretation Of The Term Investmentvermögen

The Luxembourg tax authorities released Circular L.G. – Conv. D.I. n°58 on February 9th 2015 (hereafter the "Circular") which aims at providing clarification with regards to the interpretation of the term Investmentvermögen used in the new double tax treaty signed between Luxembourg and Germany and effective since January 1st 2014 (hereafter the "DTT").

Article 1 §1 of the protocol to the DTT states that Investmentvermögen set up in accordance with the law of one of the contracting States (in Luxembourg an Investmentvermögen is a fonds commun de placement, commonly referred to as an FCP, i.e. an investment fund without a corporate form that is represented and managed by a management company) can request the benefits of the articles 10 (related to dividend distributions) and 11 (related to interest payments) provided that they are held by residents (as defined in article 3.d. of the DTT) of the same contracting State. In case the Investmentvermögen avails itself of the reduced treaty rates as regards dividends and interest payments, the investors lose their right to claim these treaty benefits.

Prior to the issuance of the Circular, there was some uncertainty as to whether Article 1 §1 created a special entitlement of the tax transparent Investmentvermögen itself to the benefits of the DTT and especially to the reduced withholding tax rate on dividend payments...