Hidden dividend distributions & hidden capital contributions A technical guide - Oliver R. Hoor - Legitech - broché - Guide

Luxembourg companies have a legal personality that is separate from that of their shareholder(s). Consequently, they may enter into agreements with their shareholders as they do with third parties. However, when the terms and conditions of those agreements do not adhere to the arm's length standard, tax adjustments may be required in accordance with the concepts of hidden dividend distribution and hidden capital contribution. Both concepts aim at a separation of the sphere of the company (which is itself subject to corporate income tax on its worldwide income) from that of its shareholders. As such, the concepts of hidden dividend distribution and hidden capital contribution are cornerstones of Luxembourg's transfer pricing rules. In addition, in the context of associated enterprises (in a group of companies), tax adjustments might be required under Article 56 of the Luxembourg Income Tax Law ("LITL"). Hence, a clear distinction must be made between agreements that adhere to the arm's