Tax Treaty Case Law around the Globe 2022

S. 183Chapter 17: Luxembourg: Qualification of Partnership Interest Payments

Werner Haslehner

17.1. Introduction

The reviewed judgment was concerned with a dispute between the Luxembourg direct tax administration and a Luxembourg company in relation to the classification of income earned from loans issued to German limited partnerships in which it held a 50% interest. The case revolved around the question whether this income should be treated as taxable interest income (as the tax administration contended) or whether, instead, the interest payments ought to be disregarded for tax purposes, leaving the exclusive taxing right to Germany.

As the interest payments had been legally deducted under German law (in the proportion of partnership interest of partners other than the creditor), the court was seemingly forced to decide whether to accept partial double taxation or partial non-taxation in the case at hand.

In its judgment, Luxembourg’s first instance court (Tribunal administratif, hereinafter the court) referred to the Germany-Luxembourg Income and Capital Tax Treaty (1958), although it did not ultimately rely on tax treaty law for the resolution of the contentious issue – the qualificati...