Summary of the judgment

The European Court of Justice (ECJ) has on 12 September 2006 decided that the UK’s controlled foreign company (CFC) legislation can not be used to levy UK tax on the profits of low-taxed companies based in other EU member states, where such companies carry on genuine economic activities there.
The ECJ stated that it is not an abuse of the EC Treaty’s freedom of establishment to set up a company in another EU Member State, which has a more favourable tax regime.

Consequences for Luxembourg legislation and Luxembourg companies

Luxembourg legislation does not contain any CFC rules with respect to subsidiairies resident in the European Union. As a result hereof, the above judgment should not have any immediate effect on Luxembourg tax legislation.
However, this judgment will in our opinion favour Luxembourg in the future as a prime location for companies controlled by parent companies which are resident in a EU member state that has CFC legislation.