Luxembourg holding companies – the VAT challenge

By Christophe Plainchamp and Nicolas Devillers ATOZ, Luxembourg
I. Background
Strategic holding companies are common features in global commercial and industrial organisations and are used tactically in M&A. Private equity houses also use holding companies extensively in the context of their transactions. In the absence of efficient service flows structuring, all these players are very likely to suffer significant VAT costs.
This article will review the developments of the VAT jurisprudence in this area and identify risks and opportunities deriving from the evolution of this jurisprudence. Indeed, the VAT concepts applicable to the holding companies have been evolving significantly in recent years and may seem quite complicated at the first sight. Attention must however be paid to the flows of services and their implications in the light of the VAT legislation. Indeed, inadequate structuring leads to VAT costs – VAT itself with rates ranging between 15 percent to 25 percent in the European Union – but also time-consuming administrative obligations.

A holding company is usually defined as…

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