Tax treatment for corporate income tax (“CIT”) and municipal business tax (“MBT”)
For CIT and MBT purposes, the Circular reminds that the simplified liquidation under article 1865bis of the Civil Code should trigger the same tax consequences than a liquidation, so the company should be taxed on the realization of all its assets and liabilities at their fair market value.
Furthermore, the Circular specifies that this operation is to be assimilated to a merger and can then benefit from the same tax neutral regime granted to a merger. In this view, once the conditions are met (i.e., notably (i) the transfer is carried out by a cancellation of the participation held by the absorbing entity in the absorbed entity and (ii) the transfer must be carried out under conditions guaranteeing the future taxation in Luxembourg of any hidden reserves that would have been taxable in Luxembourg in the absence of the tax neutral regime), the simplified liquidation can be performed without triggering any taxation at the level of the dissolved company without liquidation.
As long as the conditions are met, the same regime should apply in a cross-border simplified liquidation (EU and EEA).
Net wealth tax (“NWT”) considerations
In general, a company can reduce its NWT liability by the constitution of a special NWT reserves by allocating a part of the profit realized (or available reserves) during the previous year. The constitution of the reserve and the NWT reduction are subject to some conditions and notably to the condition that the reserves must be kept for at least a 5-year period.
In case the company to be dissolved without liquidation benefited from a reduced NWT via constitution of a special NWT reserves, the Circular specifies that the NWT reserves can be transferred to the shareholder upon the dissolution without liquidation in order to meet the 5-year period and keep the benefit of the reduced NWT. In addition, the Circular mentions that the reserves must be constituted before the end of the last financial year, this one being closed by the dissolution.
For any questions, please contact your trusted advisor at Tiberghien Luxembourg or contact any of the authors of this publication.
