On 10 November, the Luxembourg constitutional court found that some elements of the flat minimum net wealth tax (NWT) of EUR 4,815 for holding and financing companies was unconstitutional in cases where it exceeded the minimum NWT that would have been payable under the progressive scale.
Awaiting a legislative change, taxpayers whose total balance sheets sit between EUR 350,000 and 2,000,000 may benefit from a lower minimum NWT of EUR 1,605 rather than the EUR 4,815 otherwise applicable. This applies to NWT assessments that have not yet been issued or can still be challenged.
Background on Luxembourg minimum NWT
Luxembourg resident companies are subject to NWT, levied annually at a rate of 0.5% on their net asset value, with any portion of such wealth exceeding EUR 500,000,000 being subject to a rate of 0.05%.
A minimum NWT of EUR 4.815 is applicable to Luxembourg resident companies whose financial fixed assets, transferable securities, receivables from affiliated undertakings, and cash deposits exceed EUR 350,000 while simultaneously comprising 90% or more of their total gross assets.
In all other situations, Luxembourg resident taxpayers are subject to a minimum NWT determined under a progressive scale ranging between EUR 535 and EUR 32,100. Taxpayers with a total balance sheet between EUR 350,000 and EUR 2,000,000 are subject to a minimum NWT of EUR 1,605 under this progressive scale.
The Luxembourg tax authorities imposed the EUR 4,815 minimum NWT on a taxpayer with a negative net asset value but a balance sheet total between EUR 350,000 and EUR 2,000,000. The taxpayer contended that it should instead be subject to the EUR 1,605 minimum NWT that would apply under the progressive scale, arguing that there was an unjustified distinction between taxpayers in general and taxpayers whose balance sheets are comprised primarily of financial assets.
The administrative tribunal referred the question to the constitutional court, who found that there was a discrimination between taxpayers that are in otherwise comparable situations, which is not in line with the principle that a taxpayer's capacity to pay must be based on economic reality.
The constitutional court concluded that this discrimination violated article 15 of the Luxembourg constitution (in its current version dated 1 July 2023). Taxpayers who would otherwise be subject to the EUR 4,815 minimum NWT should instead be subject to the lower minimum NWT of EUR 1,605, until the law is changed.
Pending a potential change of the law, taxpayers with total balance sheets between EUR 350,000 and EUR 2,000,000 who would otherwise be subject to the EUR 4,815 minimum NWT may benefit from a (lower) minimum NWT of EUR 1,605, if they have not yet been assessed or if their NWT assessment is less than three months old (in which case they may file an objection against the assessment to claim the benefit of the lower NWT liability).
Although not decided in the constitutional court case, possibly the argument can also be transposed to other cases where minimum NWT is higher according to the progressive scale compared to the flat amount of EUR 4,815.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.