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In
July, 2006, the European Commission ordered the government
of Luxembourg to dismantle its system of tax breaks for financial
holding companies, after concluding that the preferential
tax regime in favour of Luxembourg’s Exempt, Milliardaire
and 1929 Financial Holding companies violates EC Treaty state
aid rules. (The existing regimes are described in Offshore
Legal and Tax Regimes.)
"It
distorts competition and trade by altering the level playing
field between financial undertakings and induces them to create
dedicated structures in Luxembourg to reduce their current
tax liabilities," the EC stated.
In
June 2005, Luxembourg amended the 1929 law by abolishing the
exempt status for holdings receiving more than 5% of their
yearly dividend income from participating companies which
have not been subject to a tax comparable to the one applied
in Luxembourg. While this narrowed the scope of the law, the
EC argued that the regime still constitutes state aid, as
the tax advantages remain unchanged.
The
Commission decision requires the scheme to be repealed by
the end of 2006, while its effects for the existing holdings
must be definitively eliminated by the end of 2010. This will
allow the existing beneficiaries to exit from the holding
structures without incurring tax penalties.
In
June 2003, the Council of EU Finance Ministers considered
that the Exempt Holdings’ exemption from dividends constituted
a harmful tax measure within the EC Code of Conduct on business
taxation, on the grounds that the exemption was not conditional
upon the payment of a sufficient tax by the distributing company.
The
Council recommended that Luxembourg eliminate this harmful
legislation by 31st December 2010 at the latest.
However,
in August, 2006, Tenaris, a leading global manufacturer of
pipelines for the oil and gas industry, sought clarification
of the decision by the European Commission.
Tenaris pointed out in a statement that under Article 2, paragraph
3, of the EC's decision, tax benefits would appear to terminate
if all or part of the capital of holding companies is transferred
during the transition period. Tenaris believes, based on the
reasons that led the EC to allow a transition period, that
the above described effect should not apply to listed companies
with publicly-traded securities.
"As
neither listed companies nor their shareholders are able to
prevent trading in the listed companies’ shares, a different
interpretation would defeat the purpose of the transition
period that the EC deemed necessary to accommodate the expectations
and reorganization needs of such companies and their shareholders,"
the company stated.
While
Tenaris said it was "confident" that the EC of the government
of Luxembourg would take steps to clarify the wording regarding
capital transfers during the transition period, it intends
to take "appropriate legal action" in the event the authorities
fail timely to confirm Tenaris’s interpretation.
Societe
Anonyme (Joint Stock Company)
The
Societe Anonyme, abbreviated SA, or joint stock company, is
formed under the Commercial Companies Law 1915, as amended.
SAs must have a minimum capital of LUF 1.25 million divided
into freely transferable shares held by at least two shareholders,
who may be resident or non-resident persons or juridical entities.
The shareholders' liability is limited to the amount of their
subscribed (not necessarily paid-up) capital. There is a Board
of Directors (at least three), and day-to-day management may
be delegated to a managing director.
Incorporation
takes 2 or 3 days; the SA's statutes must be printed in French
or German; a director must give his name, address and occupation.
There must be registered office in Luxembourg, but only the
share register need be kept there. Accounts need to be submitted
annually to the Registrar of Companies, but need only be audited
if a company exceeds a certain size: either the balance sheet
is greater than LUF 93 million, or sales are greater than
LUF 186 million, or there are more than 50 employees.
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Societee
a Responsabilite Limitee (Limited Liability Company)
The
Societe a Responsabilite Limitee, abbreviated SARL, or limited
liability company, is also formed under the Commercial Companies
Law 1915, as amended. The SARL must have a minimum paid-up
capital of LUF 500,000 divided into 'participation certificates'
which are not freely transferable. There may not be more than
40 shareholders, and they are liable for the amount of their
paid-up capital. If there are fewer than 25 shareholders an
annual gemeral meeting is not necessary.
In
other respects, the SARL is similar to the SA.
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General
Partnership
General
Partnerships are recognised in Luxembourg law either as a
Societe Civile (most professional partnerships take this form)
or as a Societe en Nom Collectif (for instance, a family business
might choose this form). The partners are liable jointly and
severally for the full debts of the partnership. Partnerships
must be registered with Greffe du Tribunal de Commerce.
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Limited
Partnership
Limited
partnerships in Luxembourg have general partners, who are
responsible for management, and have unlimited liability,
and limited partners, who are liable only to the extent of
their capital contributions to the partnership. A limited
partnership can either be a Societe en Commandite Simple in
which case it is subject to the same rules as a general partnership,
or it can be a Societe en Commandite par Actions, in which
case the limited partners are issued with shares and the partnership
is treated in the same way as an SA (see above) in most respects.
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Branch
of Overseas Company
An
overseas company can carry on business in Luxembourg through
a branch office, but will need to obtain a permit as does
every business. A branch office will normally constitute a
permanent establishment from a tax point of view (see Domestic
Corporate Taxation).
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'Holding'
Company
The
Luxembourg Holding Company and 'Soparfi' (Societe a Participation
Financiere) are the forms which permit 'offshore' activity
in Luxembourg: see Offshore Legal
and Tax Regimes for a full description. However, they
are not separate legal forms as such, and employ one of the
above forms, either SA, SARL or Societe en Commandite par
Actions, as a legal base.
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