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Wednesday, 04 May 2022

115 account contributions and Luxembourg parent-subsidiary regime


  • On 31 March 2022, the Luxembourg Administrative Court of Appeal rendered a decision considering that 115 accounts contributions are not to be included in the acquisition price of the shares held in a participation, for the purpose of the application of the dividend withholding tax exemption.
  • 115 account contributions refer to contributions made into a specific equity account called ‘capital contribution not remunerated by the issuance of shares’. As their name implies, these contributions do not result in the issuance of new shares nor in an increase of the nominal value of existing shares.
  • In practice, 115 account contributions are often used due to their simplified formalities (e.g. no requirement for a public notary compared to formal share capital contributions), but usually only in presence of a sole shareholder, or when all shareholders commit to proceed with a similar (i.e. proportional to their holding percentage) contribution, so that no dilution occurs.
  • The question of law submitted to the court was whether these 115 account contributions are included in the acquisition price of shares held in the participation to which the 115 account contribution was made. More specifically, whether the amounts thereby contributed can be considered for the computation of the minimal 1.2 MEUR acquisition price required for the dividend withholding tax exemption.
  • According to the Court, only amounts that have been paid to effectively acquire shares should be regarded as part of the acquisition price for the application of the exemption regime.
  • In the case at hand, because the purchase of the shares was not conditioned to the 115 account contribution, and in the absence of any specific mention (e.g. in the bylaws of the beneficiary company) allocating specific rights to the contributor as a result of the contribution, the Court considered the said amounts as transferred without any counterpart in return for the shareholder and therefore as excluded from the acquisition price of the shares.
  • Although the exact scope of this decision is not entirely clear, this case law means that care should be taken in respect of 115 account contributions (or similar contributions made in foreign entities) each time they are susceptible to impact the application of the participation exemption or withholding tax exemption.

Luxembourg participation and withholding tax exemption regime

Luxembourg tax law provides for a participation exemption regime applicable to qualifying participations held by qualifying entities. This exemption is broad and covers dividends, capital gains and liquidation proceeds derived from a participation.

In addition, and subject to similar conditions, Luxembourg tax law provides for an exemption of the 15% withholding tax on dividend (“WHT”) distributed by qualifying participations and the latter are also exempt from net wealth tax.

Qualifying participations generally refer to investments that meet certain conditions. One of them is to hold (or commit to hold) the participation during a certain uninterrupted period (at least 12 months) without falling under a minimum threshold (10% of the share capital) or a minimum acquisition price of shares held in the participation (1.2 MEUR for dividends, liquidation proceeds exemption and 6 MEUR for capital gains exemption).


Case: Are 115 account contributions part of the acquisition price of shares?


In the case at hand, a Luxembourg company (the ‘Shareholder’) had purchased shares in another Luxembourg company (the ‘Company’). On the same day, the Shareholder and the Company agreed upon the contribution by the Shareholder to the Company of certain amounts. The agreement provided that this contribution would be realized by way of a 115 account contribution. Subsequently, the Shareholder purchased additional shares and was owning around 4,5% of the share capital of the Company.

Whereas the amount paid in consideration for the shares under the share purchase agreements was less than 1.2 MEUR, the total amount invested by the Shareholder in relation with the participation (including the 115 account contribution) was exceeding the amount of 1.2 MEUR.

Further to these operations, the Company distributed a dividend to the Shareholder. Since, at the time of the distribution, the 12-month holding condition was not yet fulfilled, the Company withheld and remitted the WHT to the Luxembourg tax authorities. Then, once the minimum holding period was met, the Shareholder requested a refund in accordance with article 149 of the Luxembourg income tax law (“LITL”). The Luxembourg tax authorities denied the refund request as they considered that the participation was not fulfilling the condition relating to the minimum acquisition price of 1.2 MEUR, on grounds that the 115 account contribution was not to be included in the acquisition price of the participation.

The Shareholder contested this position before the Administrative tribunal, which ruled in favor of the tax authorities on 11 May 2021. An appeal was then filed by the Shareholder before the Luxembourg Administrative Court of Appeal.

Arguments of the parties

The tax authorities considered that a 115 account contribution does not serve the same purpose as share premium. Share premium is paid in order for new shareholders to acquire a right on existing reserves and for the purpose of balancing the rights of new and existing shareholders which are compensated this way. Share premium also results in the issuance of new shares.

On the other hand, 115 account contributions are used for the same purpose as a formal capital contribution but sometimes preferred due to their simplified formalities. Moreover, by proceeding with a 115 account contribution, shareholders make a contribution without any counterpart (such as shares or any other remuneration). Finally, this kind of contribution is not provided for by the Luxembourg company law.

For these reasons, the tax authorities concluded that the funds contributed through a 115 account contribution should not be recognized as a direct participation in the share capital to include in the acquisition price for the purpose of the exemption.

On the other hand, the Shareholder considered that the contributions increasing the acquisition price of a participation are not limited to those strictly listed in the company law. In other words, that the notion of acquisition price should include both (i) formal contributions (such as subscribed share capital or share premium) and (ii) informal contributions (such as hidden contributions or disguised capital), provided these result in an actual increase of the value of the participation held by the shareholder.

The Shareholder further emphasized that account 115 is classified under the category of ‘share premiums and assimilated premiums’ of the Luxembourg general chart of accounts and that, for this reason, it should be considered, also for tax purposes, as an equity contribution falling into scope of the notion of acquisition price.

Decision of the Court

In its analysis, the Court indicated that the notion of acquisition price must be interpreted in accordance with the general provisions of article 25 LITL and as including all the expenditures incurred by the purchaser in order to acquire an asset, as it exists upon the time of its valuation. As a consequence, this definition should include expenditures that are ancillary to the acquisition operations.

Despite this broad definition, the Court considered that such expenditures can only be considered as included in the acquisition price of a participation in the share capital of the subsidiary provided it results in an increase of the number of shares held or of their nominal value, or when the expenses are directly ancillary to such increase.

According to the Court, it could have been the case for instance if the 115 account contribution was a condition for the acquisition of the shares clearly mentioned in the share purchase agreement. The Court also noted that the bylaws of the subsidiary did not provide that the amounts contributed under the form of 115 contributions had to be exclusively allocated to the Shareholder. 

Based on its analysis, the Court considered the 115 account contribution as a transfer of funds from the Shareholder to the Company consisting in an informal contribution that does not provide any counterpart (issuance of shares or increase of the nominal value of existing shares) and that cannot be considered as directly ancillary to the acquisition of the shares.

In this scope, this 115 account contribution had to be excluded from the notion of acquisition price of the shares held in the participation.

Analysis and impact

The exact circumstances of the 115 account contribution are not described precisely in the published case law. The wording employed however suggests that the 115 account contribution agreement was concluded between the Company, the Shareholder and its co-shareholders. Although not explicitly mentioned, it seems that the co-shareholders also proceeded, on their hand, with a 115 account contribution, for an amount proportional to their own participation in the Company.

Under this scenario, each shareholder, including the Shareholder, contributed a certain amount in 115 account, depending on their holding percentage. This resulted in an increase of the equity of the Company and, although each contribution was not specifically linked to the participation held by the contributor, the actual value of the participation of each shareholder likely increased in an extent equal to their contribution.

Therefore, even if new shares were not issued nor their nominal value had increased, each shareholder became entitled to the equity contributed (subject to the net situation of the beneficiary company).

The approach retained by the Court here seems formal and restrictive.

Based on this decision, it is advisable for foreign and Luxembourg shareholders to review their position for investments made in Luxembourg companies through 115 account contributions if and when the latter represent less than 10% of the share capital. The same is equally advisable for Luxembourg companies investing in foreign entities through contributions similar to 115 account contributions.


For any further questions or assistance, please do not hesitate to contact your trusted Tiberghien advisor.

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