Luxembourg vs “HDP Lux SA”, July 2019, Administrative Court, Case No 42043C

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“HDP Lux SA acquired a building in France and financed the acquisition with a shareholder loan at an interest rate of 12%.

The tax authorities issued a tax assessment for FY 2011 and 2012 in which the market interest rate was set at 3.57% and 2.52% respectively and the excess payments were considered as hidden distribution of profit on which withholding tax was applied.

Decision of the Administrative Court

The court upheld the tax authorities adjustment of the interest paid on the loan and the qualification of the excess payment as a hidden distribution of profits subject to a withholding tax of 15%.

In addition, the court held that the OECD Guidelines could not influence the interpretation of the provision on hidden profit distributions, as the domestic provision had been adopted long before the OECD Guidelines, while at the same time recognising that the OECD Guidelines could be used as an “element of appreciation”.

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LUX 42043C

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