Luxembourg Tax Alert 2024-10
Newsflash: TP case law – District Court ruled, following the CJEU’s view.
Newsflash: TP case law – District Court ruled, following the CJEU’s view.
Last year ended with an upheaval when it comes to the VAT treatment of the remuneration received by a member of a board of directors of a public limited company.
In the decision of the Court of Justice of the European Union (hereafter CJEU or the Court) in the case “TP v Administration de l’Enregistrement, des Domaines et de la TVA” (C- 288/22), it has been ruled that TP, a member of the board of directors of public limited companies, may not be performing its economic activity on an independent manner and therefore may not qualify as a “taxable person” under article 9 of the VAT Directive (see our previous alert 2023-20), meaning directors’ fees he was receiving would not be subject to VAT.
The decision of the Luxembourg District Court was eagerly awaited and occurred on 22nd November 2024, confirming the non applicability of VAT to the directors’ fees received by “TP” and requesting a cancellation of the tax assessments issued by the Luxembourg VAT authorities against TP.
Although the decision broadly aligns with the CJEU ruling, the Luxembourg VAT authorities highlighted the unique and specific aspects of this particular case. They emphasized that, in their view, the ruling should not be considered a precedent or have general applicability. In particular, the reasons justifying the District Court’s ruling to exclude director's fees from the scope of VAT — namely, the fact that the director does not act on its own behalf and does not bear the economic risks associated with this role — would most likely need to be confirmed on a case-by-case basis. However, in our view, this reasoning could probably be more easily established for “non-executive” directors of Luxembourg public limited companies.
A formal position from the VAT administration is expected soon, potentially through a circular, which is expected to clarify the broader implications of this ruling. In the meantime, the circular 781-1 dated 22nd December 2023 suspending with immediate effect the existing circular (circular 781 dated 30th September 2016) and the communication dated 15th January 2024 should remain in effect, meaning that the application of VAT on director's fees should continue to be suspended for now.
As a result of the decision, a number of uncertainties however remain, which have given rise to a parliamentary question concerning notably the scope and impact of the District Court ruling on directors of other forms of companies, as well as related to the general application of VAT in this context. Given the evolving nature of the situation, we will publish an updated tax alert to provide further insights and developments on this matter as soon as they become available.
Your team of VAT experts stay at your disposal for any questions you may have in respect with the above.