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Since 1 January 2021, the UK has ceased to be caught by EU directives, including Council Directive 2011/96/EU of 30 November 2011 (the “Parent-Subsidiary Directive”), Council Directive 2003/49/EC of 3 June 2003 (the “Interest and Royalty Directive”), Council Directive 2009/133/EC of 19 October 2009 (the “Merger Directive”), Council Directive (EU) 2016/1164 of 12 July 2016 and Council Directive (EU) 2017/952 of 29 May 2017 (the “Anti-Tax Avoidance Directives”) and Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation, as amended (the “Directives on Administrative Cooperation”).
As of 1 January 2021, the dividends received by a Luxembourg company from a participation in a UK subsidiary are no longer exempt from income taxes on the basis of the Parent-Subsidiary Directive. However, they should still be able to benefit from the domestic participation exemption, provided that the UK subsidiary is a company limited by shares liable to a tax in the UK which corresponds to Luxembourg corporate income tax.
As of 1 January 2021, the dividends paid by a Luxembourg company to a UK parent company are no longer exempt from the 15% Luxembourg withholding tax on the basis of the Parent-Subsidiary Directive. However, they should still be able to benefit from the domestic withholding tax exemption, provided that the UK parent is a collective entity that is resident in a Treaty country and liable to a tax in the UK which corresponds to Luxembourg corporate income tax.
Since 1 January 2021, the provisions ofthe Directives on Administrative Cooperation have ceased to apply to the UK. As a result, the UK no longer enjoys access to the EU central directory used for storing the information automatically exchanged under these directives.
The consequences of Brexit with respect to Council Directive (EU) 2018/822 (DAC 6) are of particular relevance, especially regarding the reporting and notification obligations upon intermediaries and relevant taxpayers in Luxembourg. In this respect, the Luxembourg tax authorities have recently indicated that, in assessing whether a cross-border arrangement is reportable, intermediaries and relevant taxpayers may continue treating the UK as an EU Member State where the first step of the cross-border arrangement under review was made between 25 June 2018 and 31 December 2020. However, the UK is to be treated as a third country in assessing whether an intermediary or relevant taxpayer is subject to a reporting or notification obligation in Luxembourg as from 1 January 2021.