International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

A closer look at investor tax reporting for Luxembourg AIFs

Sponsored by

Sponsored_Firms_deloitte.png
The VAT succession leads to a full liability of the transferee for all VAT risks and opportunities.

Christian Bednarczyk and Jonathan Streicher of Deloitte Luxembourg analyse the considerations that cross-border investors should take into account when dealing with the alternative investment funds (AIFs) in Luxembourg.

A successful cross-border distribution of Luxembourg-based funds requires a thorough understanding of multiple tax compliance requirements across various countries and jurisdictions. In some of these countries, investors must comply with investor tax reporting rules to fulfill their tax obligations. 

The so-called DACH region (Germany, Austria and Switzerland) is a well-known target market of AIFs wishing to reach new investors in Europe and the US for American investors. This article provides an overview of some of the investor tax reporting requirements for Luxembourg AIFs. 



While there are often exemptions with tax laws, in general, the kind of reports a Luxembourg AIF is required to prepare depends on the investor jurisdiction.



A Luxembourg AIF can be treated as tax transparent (i.e. as a partnership) or non-transparent (i.e. as a corporation) under Luxembourg’s domestic and legal regulations. However, the same Luxembourg fund may be classified differently in some investor jurisdictions. If the investor jurisdiction classifies the Luxembourg AIF as a partnership, the Luxembourg AIF may be required to file a partnership return in that jurisdiction. If the Luxembourg AIF has multiple investors from different jurisdictions, it may need to file separate partnership returns in some/all of these jurisdictions. 



In addition, most jurisdictions require that Luxembourg AIFs prepare statements for each investor under the tax principles of the investor jurisdiction (for example the so-called separate and uniform tax declarations or K-1 statements). Some of these countries legally require a tax representative to file these statements. 



Contrary to the transparent status, the Luxembourg AIF may be classified as a corporation under Luxembourg domestic and legal regulations. That classification of the fund may require a different type of reporting in the investor jurisdiction. 



In some instances, the investor jurisdiction may also require additional reports and returns — for example a controlled foreign corporation (CFC) tax return or a passive foreign investment company (PFIC) tax return, which is uniquely for U.S. investors. These must be determined and analysed on an individual basis depending on the overall structure of the Luxembourg AIF and its investments. 



For completeness, the Luxembourg AIF may be considered a hybrid entity if the classification of the fund is different between Luxembourg, the investor jurisdiction and/or the investment jurisdiction. This difference may have additional implications for either the Luxembourg AIF and/or the investors. 



High complexity in nearly all jurisdictions requires intensive tax knowledge



In the past, some AIFs used tax reports that were prepared for one jurisdiction (for example under US federal income tax purposes) for other jurisdictions (for example Germany). Although this may have been common practice, the information in these reports are prepared under different rules and, therefore, are not relevant or reliable in other jurisdictions. 



With the requirements of investors to disclose all tax information in their home countries increasing, cross-border investment tax reporting for AIF funds is more important than ever. It is expected that local tax jurisdictions will take a closer look at the tax information reported to ensure that the investors fulfill their domestic compliance obligations and that the right amount of taxable income is included in investors’ tax returns.



The AIF’s legal representative is required to provide the relevant tax information accurately and according to the different tax rules. Therefore, the legal representative is also accountable and liable if the wrong figures are provided. Consulting a tax advisor equipped with an in-depth knowledge of different tax regimes allows for a successful navigation concerning the complexity of the rules, the work to be performed, and the risk of liability.



Christian Bednarczyk

T: +352 451 454 467

E: cbednarczyk@deloitte.lu



Jonathan Streicher

T: +352 45145 3810

E: jstreicher@deloitte.lu

more across site & bottom lb ros

More from across our site

An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.
President Joe Biden’s nominee is set to be confirmed as IRS commissioner for a five-year term.
British companies are waiting to hear the details of what will replace the 130% ‘super-deduction’ next week, while Spain considers stopping a major infrastructure company moving to the Netherlands.
President Joe Biden wants to raise corporate tax and impose a higher stock buyback tax on US businesses, but his budget proposal faces insurmountable obstacles in Congress, writes Ralph Cunningham.
EY is still negotiating the terms of the plan to split its audit and consulting functions, but the future of tax services is reportedly a sticking point.
Country-by-country reporting is the best option for safe harbour provisions under the global anti-base erosion rules, according to tax directors at companies including Standard Chartered Bank and Pernod Ricard.