In Luxembourg, CFC income is defined in Article 164ter LITL. CFC income consists of the non-distributed income of a controlled foreign company that arises from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage. An arrangement is considered non-genuine where the CFC would not own the assets or assume the risks generating the income were it not for the significant people functions carried out in Luxembourg by the controlling entity.
The income to be included under the CFC rule applies to amounts that are linked to those assets and risks connected with significant people functions performed in Luxembourg. In this way, categories such as interest, royalties, dividends, or other financial income may fall within scope only where they stem from non-genuine arrangements.