Luxembourg Tax Alert 2021-02

Luxembourg Tax Alert 2021-02



Rejection of withholding tax reclaim

Insufficient proof of beneficial ownership

The court of first instance confirmed a decision by the Luxembourg tax administration, which rejected a claim for refund of dividend withholding tax. In the case at hand, the taxpayer could not convince the administration nor the court of its beneficial ownership of the dividend income.



The taxpayer, a Luxembourg limited company, held dematerialized shares in three issuing Luxembourg companies which paid dividends in the years 2014 and 2015.

The legal framework for dematerialized shares involves a securities depository (i.e. custodian bank) that keeps and holds the shares on behalf of the investor. No physical document of these intermediated securities will be issued. The dematerialized shares are only represented by a record in a securities account maintained by the custodian. Thus, the identity of the investor as beneficial owner will not be disclosed to the public, while the relationship between the investor and the securities depository follows the rules set forth by the custodian agreements. The exercise of investor rights is ensured by providing a certificate issued by the custodian to the investor attesting the number of securities held.

Dematerialized securities circulate by account-to-account transfer. Dividend distributions by the issuing company are validly carried out by payments on the securities account maintained by the custodian and may involve further intermediaries, such as a paying agent.

Proof of beneficial ownership to claim refund of withholding tax

Against this background, the tax administration required a documentation of the complete chain of payments and a proof of payment from each intermediary in the chain from the issuing company to the investor.

However, the taxpayer claimed that it would be impossible to produce this evidence, since the chain of the dividend payment involved many intermediaries who are not informed of the identity of the investor being the last link in the chain.

Instead, the taxpayer submitted tax vouchers issued by an intermediary which stated the following: “Dear customer, At the general meeting of Shareholders X FDR held on (…) the 2014 dividend was declared (…) as follows: Cash dividend with ex dividend date 17-04-2014, Record date 23-04-2014 payable on 24-04-2014. Specification dividend amount

Account No 1 TRAD

EUR 1.0700000 Dividend on 5891016 shares          EUR … C

15.00% Dividend tax                                                     EUR … D”

The Luxembourg tax administration disregarded this tax voucher as insufficient proof. In their view the document did not have the classical form of a tax voucher. The computer-generated document had no (double) signature and was not printed on a proper letterhead with a logo of the company.

Decision of the court

The court confirmed the decision of the tax administration. The judges took a close look at the underlying legal provisions and a broader look at the current tax environment. In particular, the judges took into account the so-called Cum-Ex scheme which apparently allowed multiple persons to claim ownership of the same shares and the corresponding right to receive a refund of the same amount as the taxes withheld from dividend payments.

In Luxembourg, the refund of withholding tax can be claimed by the beneficiary of the dividend income, provided that the beneficiary maintained, on the date of the dividend distribution, during an uninterrupted period of at least 12 months, a direct participation of at least 10% in the share capital or at least an acquisition price of EUR 1.2 million in the issuing Luxembourg company.

The court held that the burden of proof is on the taxpayer to evidence that these requirements for the full exemption from withholding tax are actually met.

The court acknowledged the difficulties of the tax administration to identify multiple withholding tax reclaims for the same shares, especially when intermediated securities (i.e. dematerialized shares or bearer shares) are involved. As a consequence, investors which claim legal or economic ownership of shares in a distributing company must prove that they are the beneficial owner (bénéficiare éffectif) of the dividend income.

Additional complexity was added to the case by the fact that the investor had lent some dematerialized stocks to a third party. In consideration for the dividends paid by the issuing companies to the third party, a compensation payment was due to the investors. The investor asserted that no reclaim for the withholding tax was filed for the shares which formed part of the stock lending scheme. However, the investor could not submit convincing evidence which allowed the court to identify these compensation payments and to distinguish them from dividends.

The court concluded that the evidence, in particular the tax vouchers in the case at hand, did not prove that the investor is the beneficial owner of the dividend payments.

KPMG comments

An appeal has been lodged against this judgment.

Companies currently facing a similar tax controversy should safeguard their taxpayers’ rights. KPMG Luxembourg can assist you with the application of the right remedies at the right time. In general, taxpayers have three months to appeal against administrative decisions.

KPMG Luxembourg can also assist you with:

  • Setting up a proper process and documentation together with the custodian and paying agents, and
  • Preparing applications for a reduction at source and the filing of withholding tax reclaims in all countries that infringe EU law, tax treaty regulations and domestic law by applying a discriminatory tax treatment to cross-border dividend distributions.


Hermann Schomakers
+352 22 51 51 5606

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