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HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
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Luxembourg: Dividends

 

Luxembourg tax deducted from dividends at the agreement rate of 15 per cent (see the next paragraph if the recipient is a United Kingdom company controlling, directly or indirectly, at least 25 per cent of the voting power in the Luxembourg company paying the dividend) qualifies for credit as a direct tax (see INTM164010(c)). To obtain the reduced treaty rates the recipient must be a resident of the United Kingdom and be the beneficial owner of the dividend. Also, the dividend must not be effectively connected (see INTM153110 fifth sub- paragraph) with a business carried on by the recipient through a permanent establishment in Luxembourg.

Where the recipient of the dividend is a United Kingdom company controlling directly not less than 25 per cent of the capital of the Luxembourg company paying the dividend, the EC Parent and Subsidiary Directive bars the imposition of withholding taxes, notwithstanding that a rate of 5 per cent is allowed by the agreement. The level of control required to gain exemption is 20 per cent from 1 January 2005, 15% from 1 January 2007 and 10% from 1 January 2009.

Where the recipient of the dividend is a United Kingdom company controlling directly not less than 25 per cent of the voting power in the Luxembourg company paying the dividend, credit may be given for the underlying tax (see INTM164010 (d)) (Article 25(l)).

Where the United Kingdom company controls, directly or indirectly, at least 10 per cent of the voting power in the Luxembourg company paying the dividend, relief for the underlying tax is given unilaterally.