Luxembourg Tax Authorities Issue Initial Administrative Guidance On Reverse Hybrid Rules

On 9 June 2023, the Luxembourg tax authorities have issued a first circular (No 168quater/1) on the application of the so-called reverse hybrid rules. This circular provides clarifications on notably the tax status of a hybrid entity in Luxembourg, how its taxable result is to be computed and the tax compliance obligations applicable to it. This is welcome guidance, as reverse hybrid entities need to file their first tax return in such quality by 31 December 2023.

Background

As a reminder, the reverse hybrid rules apply where (i) non-resident investors, who are associated or deemed associated with a Luxembourg tax transparent entity (such as partnerships) are located in a jurisdiction or jurisdictions that regard such Luxembourg entity as a taxable person, (ii) such investors in aggregate hold 50% or more of interests, voting rights or rights to profits in the Luxembourg entity and (iii) such investors are not taxed on their share of the Luxembourg entity's