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16 November 2015

Intellectual property regime changes for Luxembourg

Luxembourg to transform IP box regime

As part of the Organisation for Economic Development's (OECD) commitment to reduce the scope for tax practices considered unbeneficial to the economic climate in the EU, on 14 October 2012 the Luxembourg Minister of Finance submitted two important bills to parliament containing a number of provisions designed to address the situation of corporate taxpayers in the Grand Duchy.

 

One of the two draft laws – the Budget Bill for 2016 – looks to transform Luxembourg's current intellectual property regime so that it complies with the aims the OECD outlined in its Base Erosion and Profit Shifting (BEPS) action plan. However, Luxembourg is not the only country that is responding to the changing environment; several other EU states are also having to adapt their intellectual property regimes in order to align with the new "modified nexus approach" in which there must be correlation between income eligible for tax benefits and the types of assets responsible for that income.

 

The draft laws propose the abolition of the Luxembourg IP box corporate and business tax regimes by 1 July 2016 with the abolition of IP box regimes for net wealth tax coming in six months later (1 January 2017).

However, in keeping with its favourable reputation for being a hub for business and wealth creation, the abolition of of the Luxembourg IP box regime will not be felt by those currently benefitting from the arrangement until 30 June 2021. New entrants will also benefit too, providing they register by 1 July 2016 and meet a number of important criteria.

 

As the original announcement from the Luxembourg government was to modify the regime, we can anticipate that this abolition will, at some point, be followed by the introduction of a new BEPS compliant regime.

 

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