THE APPLICATION OF THE TAX INTEGRATION REGIME IS LAID DOWN IN ARTICLE 164BIS OF THE INCOME TAX ACT
A tax integration regime is nothing more and nothing less than a tax consolidation of a group or part of a group of companies. It allows the parent company to combine or offset the tax results of the members of the group, whether this is a Luxembourg company or a Luxembourg permanent establishment of a foreign company.
Eligibility for the regime
To be eligible for the tax consolidation regime, the parent company must directly or indirectly own 95% of the share capital of its subsidiary and the holding must exist on the first day of the financial year for which the tax consolidation regime is requested.
There is however an exemption to this threshold, which can be reduced to 75%. In this case, the approval of the Minister of Finance is mandatory as well as the approval of 75% of the minority shareholders.
Companies which are part of a group that benefits from the tax consolidation regime must:
- Remain linked for a period of at least 5 years;
- Open and close the financial years on the same date;
- File a tax return for each company in the integrated group;
- File a return which aggregates and offsets the tax result of all companies integrated with the parent company.
However, companies which are part of a fiscally integrated group are not required to consolidate their accounts at the accounting level, as the tax consolidation is performed by means of the individual tax returns of each company in the group.
Losses carried forward
Losses realised by a subsidiary before tax integration are only deductible against its own future profits.
Corporate income tax
Only the parent company is liable for corporate income tax during the tax integration period. It is also responsible for paying the advances calculated on the basis of the group's cumulative taxable income.
Commercial and municipal tax
As far as the municipal commercial tax is concerned, the allowance of 17,500 euros is only applicable in the case of the parent company. Once the tax has been calculated, a breakdown of the overall tax base must be performed according to the profit-sharing of each subsidiary. The appropriate municipal rate is applied depending on the municipality in which the subsidiary is established.
Any company which is part of a tax-integrated group remains subject to wealth tax on its own taxable wealth. However, the special feature of tax integration allows a company which is experiencing a loss for a financial year but which is liable for wealth tax to benefit from the five-year reserve (see Précis de droit comptable, page 236 of the 2020 edition) realised by another company in the group.