On 15 December 2022, the Luxembourg Parliament passed the budget
law for the year 2023 ("Budget Law"). A
request to dispense with the second vote has been filed with the
State Council.
Among the measures foreseen in the Budget Law, it is worth
noting the following key takeaways:
- clarification of the reverse hybrid entity rule
("RHER")
: Article 168quater of the Luxembourg income tax law
("LITL") sets out the conditions of the
RHER. Amongst those conditions, the foreign jurisdiction must treat
the Luxembourg transparent entity as tax opaque resulting in the
net income attributed to the relevant foreign partner not being
taxed either in Luxembourg or abroad. The Budget Law amends Article
168quater LITL so as to clarify that the absence of
taxation of the net income must result from the divergent tax
qualification of the Luxembourg transparent entity and not, e.g.,
from the subjective tax exemption of the said partner. This
amendment must be read as an additional
