Luxembourg Tax Alert 2023-17

As expected and announced in our tax alert on the decision (TA 45910)  (PDF, 0.5MB) from the Lower Administrative Court (Tribunal administratif) on 18 April 2023, the Constitutional Court ruled on 10 November 2023 that the current minimum net wealth tax (“MNWT”) regime, as applied to collective entities, partly violates the constitutional principle of equal treatment.

The case that sparked this decision involved a company eligible for the flat MNWT of EUR 4,815 based on its assets' composition and total balance sheet value. However, if the balance sheet had been slightly different (i.e., less than 90% of financial assets, i.e., those recorded under accounts 23, 41, 50 and 51 of the standard chart of accounts), it would have been subject to EUR 1,605 of (progressive) MNWT. 

The company argued that penalizing companies vis-à-vis other companies on the sole basis of a differently structured balance sheet, would be contrary to the purpose of Article 10bis, Paragraph 1 of the Constitution (before its amendment on 1 July 2023) based on which all taxpayers should be treated equally.

The company challenged what it considered to be unequal treatment in front of the Lower Administrative Court, who in turn referred the question to the Constitutional Court, the sole authority with capacity to rule over the constitutionality of laws.

1. Unconstitutionality of flat MNWT in some cases: The court found the flat MNWT of EUR 4,815, applicable to entities with certain financial assets exceeding 90% of their total balance sheet and more than EUR 350,000, to be unconstitutional. This decision was based on the absence of an acceptable rationale for the EUR 350,000 threshold.

2. Impact on taxpayers: This ruling primarily affects collective entities with a total balance sheet between EUR 350,000 and EUR 2 million, and with qualified holdings and financing assets exceeding 90% of their total balance sheet. 

   For these entities, the MNWT should now be EUR 1,605, replacing the previous EUR 4,815 flat amount.

3. Application of progressive MNWT: Until legislative amendments are enacted: 

   For entities with total assets of less than EUR 350,000, the MNWT should be EUR 535;

   For entities with total assets between EUR 350,000 and EUR 2 million the MNWT should be EUR 1,605, regardless of the percentage of financial assets (i.e., above or below the 90% threshold);

   For entities with total assets of more than EUR 2 million and holding less than 90% of financial assets, the progressive MNWT ranging from EUR 5,350 and EUR 32,100 should apply.

   For entities with total assets of more than EUR 2 million and holding more than 90% of financial assets, the MNWT should be the flat EUR 4,815;

1. Legislative changes anticipated: The Luxembourg government and Parliament are expected to respond to this ruling with legislative reforms to address the unconstitutional aspects of the NWT law. 

2. Review and assessment: Taxpayers liable to the MNWT should assess their situation to determine if a lower NWT charge could be applicable and verify their tax assessment when issued after the decision. 

3. Claiming refunds: Entities that have paid the higher rate in the past may be eligible for refunds of MNWT previously paid in excess, depending on the way the new rule is implemented. We will monitor this closely. At this point, it is anyway advisable to review past tax positions in light of this ruling.