On November 10, 2023, the Luxembourg Constitutional Court ruled that the minimum net wealth tax (NWT) of EUR 4,815 as provided for by paragraph 8 (2) a) of the Luxembourg net wealth tax law of 16 October 1934, as amended (NWT Law) is contrary to the principle of equality enshrined in the Luxembourg Constitution.
Background
According to the Luxembourg NWT Law, a minimum NWT of EUR 4,815 applies to Luxembourg companies whose aggregate fixed financial assets (Lux GAAP account no. 23), transferable securities (Lux GAAP account no. 41) and cash at bank (Lux GAAP accounts no. 50 and 51) exceeds 90% of their total balance sheet and EUR 350,000. Luxembourg companies that do not meet the said thresholds are subject to a minimum NWT varying between EUR 535 and EUR 32,100, depending on their total balance sheet. Based on these provisions, Luxembourg companies whose total balance sheet is above EUR 350,000 and below or equal to EUR 2,000,000 are either subject to a minimum NWT of EUR 1,605 or EUR 4,815 depending on the composition of their assets (i.e., whether they exceed or not such 90% threshold).
In the dispute (n°45910) giving rise to the question referred for a preliminary ruling, the Luxembourg taxpayer (i.e., a Luxembourg “Soparfi”) which was liable to the minimum NWT of EUR 4,815 considered that it was subject to an inequal treatment. This, when compared to companies in the same situation (i.e., with total balance sheet above EUR 350,000 and below or equal to EUR 2,000,000) but which did not meet the 90% threshold. The Luxembourg Administrative Tribunal referred the case to the Luxembourg Constitutional Court and asked whether this difference of treatment from a minimum NWT standpoint between companies of equal size but with a difference in the composition of their balance sheet was compliant with article 10 Bis of the Constitution.
Decision of the Constitutional Court
The Constitutional Court held that the provisions of paragraph 8 (2) a) of the NWT Law are contrary to Article 10bis (1) of the Constitution (and since July 2023, to article 15 of the Constitution as amended) which proclaims the principle of equality. According to such Court, such minimum NWT leads to a difference of treatment of taxpayers which are in a comparable situation. This difference of tax treatment is notably based on the condition related to the threshold of EUR 350,000 which is not rationally justified, adequate and proportionate to an end. No justification could be established by the Luxembourg State from the parliamentary documents related to the introduction of such NWT regime.
Consequently, pending an amendment of the provisions of the NWT Law, the Constitutional Court held that the minimum NWT of EUR 1,605 must be applied to taxpayer currently subject to the flat rate of EUR 4,815 when the latter is less favorable than the progressive rate.
Impact of this decision
This decision only affects Luxembourg taxpayers whose total balance sheet is above EUR 350,000 and below or equal to EUR 2,000,000 and whose financing assets (Lux GAAP accounts n° 23, 41, 50 and 51) exceed 90% of their total balance sheet.
Luxembourg taxpayers subject to the minimum NWT should assess their NWT position to determine how this decision could lead to a positive reassessment of their NWT liability. They should also ensure that any future assessment will take into consideration this decision at least until a legislative amendment.
It is important to note that the other provisions related to the minimum NWT remain valid.
Conclusion
Despite the considerable efforts that the drafting of new tax laws requires, the case law shows the importance of checking that new provisions comply with the Luxembourg Constitution and in particular with the principle of equality.
