Luxembourg: Recognition of a Foreign Permanent Establishment

The case discussed in this chapter concerns the recognition of a foreign PE for purposes of the application of the exemption method to a Luxembourg resident. Unsurprisingly, given the highly factual nature of the assessment as to the existence of a PE, the outcome of the case ultimately hinged upon the meagre evidence provided by the taxpayer to support the claim that such PE existed, and that the relevant income would have to be attributed to it.
In its analysis, the Court correctly analysed the requirements for the existence of a PE under the US-Luxembourg tax treaty, which broadly follows the OECD Model Tax Convention at the time of its conclusion in 1996. In so doing, the Court gave particular importance to the inconsistent evidence provided with respect to the PE’s concrete location and the lack of any proof of an actual activity undertaken in the premises rented in the US.
This chapter further considers the question whether the later included anti-mismatch provision in Luxembourg’s tax code would have any impact on the analysis of future similar cases and concluded that this would not be the case.