Tax In Distressed Situations Luxembourg

DEBT RESTRUCTURINGS

GENERAL

1. Does debt have a specific meaning for tax purposes?

The notion of debt is not specifically defined for Luxembourg tax purposes.

Instead, the general principle of substance over form applies to determine the tax classification of an instrument as debt or equity, requiring an economic and financial analysis of each transaction. Based on parliamentary documents and case law, certain features of a loan such as, for instance, the absence of an interest rate and absent or unclear repayment modalities, could justify a requalification of the loan as an equity instrument for tax purposes. While the accounting and legal treatment of the instrument is technically not decisive, in practice an instrument that legally and accounting wise does not qualify as debt is more likely to also not qualify as debt from a tax perspective. Because of the considerations above, the tax qualification of debt instruments is subject to a case-by-case analysis.