Shareholdings – Value impairment – Deduction from taxable basis – Operating value 

In a notable decision by the Luxembourg Administrative Court on 9 August 2023 (n. 47.826C), key clarifications on shareholding value assessments were made. Pursuant to Luxembourg accounting and tax rules, a company’s shareholdings are to be valued at their acquisition cost in its balance sheet. Nevertheless, taxpayers are permitted, but not obligated, to value them at their operating value (valeur d’exploitation) if the latter is lower. Conversely, recognizing a value impairment is mandatory if the impairment is expected to continue. If the operating value further increases (after a value impairment), the taxpayer is required to consider a relevant increase of the assessed value and set it at the new (higher) operating value, provided it does not exceed the acquisition cost. 

With regard to the timing of evaluating a shareholding, the Court referred to article 22 (2) of Luxembourg Income Tax Law. According to this article, the situation as at the closing date of the accounting period is key for year-end valuation. Facts and circumstances that existed on that date, and were only revealed subsequently but before the establishment of the balance sheet date, can be consideredIn the case at hand, in order to justify the disputed value impairment, the taxpayer should have demonstrated that, as of the closing date of its 2012 accounting period, there was sufficient evidence to support the assertion that the operating value of its participation in its subsidiary was lower than the acquisition price. 

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