Luxembourg tax authorities provide guidance on CIV exemption under ATAD2
02 Sep 2025
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On 12 August 2025, the Luxembourg tax authorities published a circular (Circular L.I.R n°168quater/2) offering guidance on the Collective Investment Vehicle (CIV) exemption under the reverse hybrid rules introduced by ATAD2. These rules, implemented in Luxembourg since 2022, aim to address tax mismatches involving reverse hybrid entities (RHEs).
The CIV exemption is designed to exclude certain investment funds from being taxed as RHEs, provided they meet specific criteria.
Key highlights of the circular:
Eligible funds:
- Investment funds such as Undertakings for Collective Investments (UCIs), Specialised Investment Funds (SIFs), and Reserved Alternative Investment Funds (RAIFs) automatically qualify for the exemption.
- Other funds may also qualify if they meet the following three criteria: being widely held, maintaining a diversified portfolio of securities and adhering to investor protection regulations.
Broad investor participation:
- Funds must be marketed to multiple unrelated investors. The circular provides flexibility, allowing exceptions during the launch phase (up to 36 months) or the liquidation phase.
- In master-feeder structures, the “widely held” criterion is assessed at the feeder fund level.
- A fund is presumed to meet this criterion if no single investor holds more than 25% of the capital or voting rights.
Diversified portfolio of securities:
- The term “securities” is interpreted broadly to include shares, bonds, fund units, deposits and derivatives.
- A fund is considered diversified if it spreads investments across multiple issuers, with no more than 30% of assets allocated to a single issuer unless justified.
- The diversification requirements align with those applicable to SIFs under Luxembourg law.
Investor protection compliance:
- Funds under the supervision of the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) or managed by authorised Alternative Investment Fund Managers (AIFMs) are presumed to meet this requirement.
This circular provides clarity and practical guidance for the application of the CIV exemption. By defining eligibility criteria and offering flexibility in certain circumstances, it restores confidence in the exemption’s applicability and ensures greater consistency in the interpretation of Luxembourg tax law. This is a significant development for the fund industry, particularly for those managing or investing in Luxembourg-based funds.
Luxembourg’s Circular can be found (in French) here
