Welcome Clarifications On The CIV Exemption For Luxembourg's ATAD 2 Reverse-Hybrid Rules

Key Takeaways

• Regulated funds, SIFs and RAIFs should automatically qualify for the CIV Exemption.
• The Luxembourg tax authorities will take a broader approach to the CIV Exemption conditions for other types of funds, in line with the regulatory context.

The Luxembourg tax authorities have released a new tax circular (L.I.R. No. 168quater/2 dated 12 August 2025, the "Circular") that provides long-awaited, welcome clarification on the Exemption from Luxembourg's reverse-hybrid rules (the "CIV Exemption"). As part of the EU anti-hybrid rules known as ATAD2, specific rules target the hybrid mismatch outcome arising from reverse-hybrid entities. Reverse-hybrid entities are Luxembourg entities treated as transparent for Luxembourg direct tax purposes such as a société en commandite simple (SCS) or a société en commandite spéciale (SCSp), but treated as fiscally opaque by investors in other jurisdictions. As a result, they may become subject to Luxembourg