Luxembourg Tax Regime For IP Income Also Applies To Revenues From Unregistered Designs

The Luxembourg tax regime for IP revenues - Background of the case

In the framework of the Lisbon strategy for growth and employment in the EU, the Grand-Duchy of Luxembourg has adopted an article 50bis in the Income Tax Act 1967 ("Loi concernant l'impôt sur le revenu du 4 décembre 1967" or "L.I.R.") at the end of 2007.

On the basis of this regime (the " 50bis Regime"), Luxembourg undertakings and Luxembourg branches of foreign companies can benefit from an exemption of 80% on revenues (royalty fees...) derived from all registered intellectual property ("IP") rights (patents, trademarks, designs and domain names) as well as from copyright protected software, which have been established or acquired after 31 December 2007. The exemption brings the effective tax rate for such revenues to approximately 5.85%.

In the case at hand the Luxembourg tax administration refused to grant the exemption for revenues of company [X] derived from unregistered designs. The tax administration considered that only designs for which an application has been filed, are eligible for the 80% exemption, as the filing of an application would allow an objective verification of the existence of the design rights. Company [X] challenged this refusal before the Luxembourg Tribunal administratif, the Luxembourg administrative court of first instance, as Article 50bis L.I.R. concerns designs in general and does not specify whether designs must be registered (or not).

Judgment of the Tribunal administratif - Comment

On 6 November 2013 the Tribunal administratif handed down a judgment in this case, which was published in February 2014. The Tribunal administratif held that nothing in Article 50bis L.I.R. prevents to grant the 80% exemption to revenues derived from designs for which no application was filed. The Tribunal administratif based its decision on the following arguments:

it underscored that the mere making available of a design to the public can...