Navigating Luxembourg Anti-Hybrid Partnership Rules

On June 9, 2023, Luxembourg shed light on the tax treatment of entities that are classified as “reverse hybrid partnerships” (RHPs) that trigger unexpected tax consequences for partners and partnerships. Tax authorities released a long-awaited Circular (168quater/1) that clarified Luxembourg’s tax treatment of RHPs (pursuant to the EU Anti-Tax Avoidance Directive II 2017/952 (the Directive) that would affect alternative investment funds when established as simple limited partnerships (SCSs) and special limited partnerships (SCSps).

A Luxembourg partnership is considered an RHP if at least 50% of the entity’s voting rights, capital, or profit rights ...