An SLP is a “look through” entity for Luxembourg corporate income tax (“CIT”) purposes. Profits realized by the SLP are allocated in proportion to its partners (“Allocable Income”) and are not taxed at the level of the SLP.
The SLP’s Luxembourg partners are taxable on their Allocable Income. The SLP’s non-Luxembourg partners are subject to Luxembourg tax only for defined categories of Luxembourg source income such as certain types of investment income (e.g., capital gains) realized by the SLP (“Source Income”). It is extremely rare that a properly structured SLP AIF derives Source Income.
An exception to the “look through” applies under the Reverse Hybrid Rules (“RHR”) if the SLP has 50% or more of “bad” associated investors. A “bad” investor generally is: (i) a foreign (non-tax exempt) investor, (ii) holding 10% or more in the SLP and (iii) treating the SLP as a corporation (opaque). On the latter condition, Dutch, French and Italian investors are currently the usual suspects. If these conditions are met, CIT is levied at SLP level on the Allocable Income of “bad” investors, unless such income is taxed elsewhere.
SLPs are required to file one out of three different types of forms depending on the income they derive. Form 205 is for SLPs deriving investment income (save for rent), capital gains on financial instruments and RHR income, form 200 is for other types of income (e.g., real estate income) and form 300 for business income. An SLP AIF should normally file a form 205.
Form 205 has two parts. In Part I, the SLPs must report on a “look through” basis any Source Income of all the investors. If no such income is recognized, a “nil” reporting is required.
In Part II, the SLP has to report income other than Source Income allocable to each “bad” investor. Such income is to be determined on a cash basis within a calendar year period (in other words, in principle no tax until cash arrives).
Regardless of the amounts to be declared in the form 205, the tax authorities require to attach to the form 205 a list of all SLP’s investors (including indirect investors investing through a look-through vehicle), indicating their name, address, percentage of ownership and Allocable Income. Luxembourg SLP AIFs have to file the 205 form (and related annex) before the end of the next calendar year.
As SLP AIFs rarely generate Source Income and are seldom in scope of RHR, the reporting in the 205 forms is typically plain vanilla.
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