In an administrative circular dated 1 December 2020 (the “Circular”), the Luxembourg tax administration confirmed that, following the judgment of the European Court of Justice (hereinafter the “ECJ”) in GVC Services (Bulgaria) EOOD (C-458/18), the Parent-Subsidiary Directive (hereinafter “PSD”) would stop to apply to companies resident in Gibraltar, but only after 31 December 2020. In other words, as of 1 January 2021, dividends distributed to parent companies resident in Gibraltar can no longer be distributed free of withholding tax. Similarly, dividends received by Luxembourg parent companies in relation to their shareholdings in companies resident in Gibraltar are no longer exempt in Luxembourg pursuant to the PSD.
As a reminder, the ECJ held that article 2 of the PSD, together with its Annex I, are to be interpreted as meaning that the terms “companies incorporated under the law of the United Kingdom” and “corporation tax in the United Kingdom” do not refer to companies incorporated in Gibraltar and subject to tax there (see our April 2020 newsletter).
The Circular adds that dividends received (as well as capital gains realized) by Luxembourg parent companies from subsidiaries resident in Gibraltar may however continue to be exempted under Luxembourg domestic law, if the Gibraltar resident subsidiary meets the requirements of the Luxembourg domestic exemption regime, which in particular requires that the subsidiary is subject to a tax which is comparable to Luxembourg tax. The same applies for net wealth tax purposes, where a participation held by Luxembourg companies in companies resident in Gibraltar should only be tax exempt if such subsidiary is subject to a tax comparable to Luxembourg tax.