In a decision dated 31 March 2022, the Luxembourg Administrative Court of Appeal denied the application of the Luxembourg participation exemption regime in relation to a French SPPICAV (French real estate fund) held by a Luxembourg holding (SOPARFI).
As such, this decision can easily be understood : the SPPICAV is in principle exempt from French corporate income tax under certain conditions (Art. 208 Code Général des Impôts). Besides, the SOPARFI was unable to demonstrate that the SPPICAV was effectively subject to corporate income tax in France. Interestingly, the Court stressed that a mere “potential or theoretical” taxation in France was not sufficient in order to meet the subject to tax test. The Court referred in this respect to the famous CJEU Wereldhave case dated 8 March 2017 (C-448/15), with respect to the subject to tax requirement of the Parent-Subsidiary Directive (PSD).
Based on my reading of this decision, the Court leaves the door open to apply the Luxembourg participation exemption regime to EU companies subject to corporate income tax, while enjoying a low effective tax rate. The Court indeed distinguishes between the SPPICAV (enjoying a subjective exemption) and a Belgian SICAV (subject to Belgian corporate income tax, but with a low taxable basis). Only the latter could be eligible for the Luxembourg participation exemption regime, which is in line with a previous judgment from the administrative tribunal of 15 February 2012 (to which the Administrative Court explicitly referred).
It is interesting to note that if a Belgian holding company is used in order to invest in a Belgian SICAV, the Belgian participation exemption (dividend received deduction regime) is in principle not applicable. Under Belgian tax law, the subject to tax test is indeed not met, save if the SICAV qualifies as a “DRD SICAV” (the Belgian minister of Finance intends however to abolish the regime applicable to the DRD SICAV).
Cfr last article of Denis-Emmanuel Philippe in Agefi.
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