Clifford Chance

Redemption of "Alphabet" classes of shares – Guidance on the Luxembourg tax treatment from the Administrative Tribunal

15 February 2023

On 27 January 2023, the Administrative Tribunal of Luxembourg ruled in case n°42432 on the Luxembourg tax treatment of the redemption and cancellation of an entire class of shares.

Whilst the Administrative Tribunal confirmed that the proceeds derived by the shareholder from the redemption of a class of shares qualify as capital gains, it also held that the repurchase could nevertheless be recharacterised as a hidden dividend distribution, subject to Luxembourg withholding tax, for the amount exceeding the fair market value of the shares redeemed if this amount cannot be supported by valid economic reasons.

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