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An analysis by ATOZ Tax Advisers, Taxand Luxembourg
On 23 November 2022, the Luxembourg Administrative Court held its decision in a case concerning an interest-free loan which was granted by a Luxembourg company to its wholly-owned Luxembourg subsidiary.
This decision overturns the ruling of the Administrative Tribunal of 23 September 2022 which confirmed the position of the Luxembourg tax authorities that classified the interest-free loan as a hidden capital contribution (rather than a debt instrument).
In an ATOZ Report (released in March 2023) our team carefully analysed the classification and tax treatment of the IFL and reached the same conclusions as the Court. Considering the wide-spread use of interest-free loans to finance Luxembourg companies, the importance of the Decision cannot be overstated. Indeed, over the last year, some Luxembourg tax advisers became extremely concerned when considering the implementation of IFLs. As such, the Decision of the Court has contributed to much-needed legal certainty.
In this article, Oliver R. Hoor and Marie Bentley from ATOZ Tax Advisers, analyse the decision of the Administrative Court according to which an interest-free loan qualifies as a debt instrument.
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