The United Kingdom and Luxembourg signed a new Protocol to the tax treaty on June 7 2022. The Protocol still needs to be ratified before it will enter into force.

Protocol and CIVs

What is interesting is that in article 2 of the Protocol, the definition of resident is extended to include a Luxembourg investment vehicle that is set up in the form of a body corporate for tax purposes. To qualify as a resident the beneficial interests in the vehicle needs to be owned for at least 75% by so-called ‘equivalent beneficiaries’.  The term “equivalent beneficiary” means a resident of Luxembourg, and a resident of any other jurisdiction with which the United Kingdom has arrangements that provide for effective and comprehensive information exchange who would, if he received the particular item of income for which benefits are being claimed under this treaty, be entitled under an income tax treaty with the United Kingdom, to a rate of tax with respect to that item of income that is at least as low as the rate claimed under this treaty by the collective investment vehicle with respect to that item of income.

CIVs

The term collective investment vehicles used in the treaty includes UICTS, RAIFs and SIFs as well as other invest funds or arrangements established in Luxembourg which the competent authority agreements agree to regards as CIV. With respect to dividends, the treaty offers a full tax exemption in the source country, provided the recipient is the beneficial owner of the payment, except for dividends paid out of income from immovable property. The Treaty does not accommodate a (withholding tax) exemption for distributions by investment vehicles that annually distribute most of their income and whose income or capital gains derived from real estate are tax exempt.