The European Commission has recently issued a decision requiring Luxembourg to abolish its tax regime for holding companies, commonly known as the 1929 holding company regime.
The Commission’s decision (which has been accepted in principle by the Luxembourg authorities) requires the repeal of the regime by 31 December 2006. The decision prohibits the establishment of any new 1929 companies from the date of the decision (19 July 2006). Existing 1929 companies may continue to enjoy the exemption until 31 December 2010, but the decision requires the withdrawal of the exemption in respect of any 1929 company if the whole or part of its share capital is transferred after 31 December 2006.
The effective date of the decision presents a four-month window of opportunity for groups which contain 1929 companies to restructure without losing the relief. Any such groups which foresee a need to restructure in the near future should consider whether any restructuring should be undertaken immediately, given the risk that it may no longer be possible to restructure and preserve the relief after the decision is implemented at the end of the year.