Agefi Luxembourg - mai 2026

AGEFI Luxembourg 34 Mai 2026 Droit & Travail O n 21April 2026, the Luxembourg AdministrativeCourt of appeal ( Cour administrative, 21 avril 2026, n°52991C ) (the “AdministrativeCourt” or the “Court”) tookpositiononhowan im­ movable property situated abroad and heldvia a tax transparent foreign en­ tity, aswell as debt in relation to its financing, shouldbe treated for netwealth tax purposes. In the case at hand, the controversy arose from the treatment, for Lux­ embourgnetwealthtaxpurposes,of assets and liabilities relating toaPol­ ishentity inwhich the taxpayerheld a participation. The entity in ques­ tionhad legal features akin to thoseof a Luxembourg limited partnership ( société en com­ mandite simple ). Such characterization was not dis­ puted by the parties. The taxpayer considered that its Polish subsidiary should be regarded as tax transparent for Luxem­ bourg tax purposes.Accordingly, the taxpayer deter­ mined itsunitaryvaluebyaggregating its ownassets andliabilitieswiththoseofthePolishentity.Asaresult, its “consolidated” net wealth tax base included the Polish real estate property as a tax asset and the debt havingfinanceditsacquisitionasadeductibleliability. The economic link between the real estate property and the debtwas alsonot disputedby the parties. The outcome sought by the taxpayerwas for the Pol­ ishproperty tobevaluedunder the specific historical valuationregimewhichnormallyappliesonlytoLux­ embourgbased real estate. Broadly, as the Polish property had no reference value as at 1 January 1941 for Luxembourg valuation purposes (as required under Luxembourg valuation rules for unitary value purposes), the taxpayer included only about 10% of the building’s fair market value in its unitary value while deducting the related debt for its full amount, thereby creating a negative amount and significantly reducing its netwealth tax base. TheLuxembourgtaxauthorities,however,didnotac­ ceptthisapproach.InApril2017,theynotifiedthetax­ payer of their intention to deviate from its tax return for2013andtoexcludeboththerealestateandthere­ lateddebtfromthetaxpayer’snetwealthtaxposition. Thetaxpayersubmitteddetailedobservationsandex­ planations to the tax office, which nonethelessmain­ tained its position and confirmed the adjustment. An administrative claim ( réclamation ) was subse­ quently lodgedwith theDirector of theLuxembourg tax authorities ( Administration des Contributions Di­ rectes ) inSeptember 2017. In2019, the taxoffice raised similar objections in relation to the taxpayer’s tax re­ turn for 2014, prompting the filing of a second claim. As the Director remained silent on both claims, the taxpayer finally brought the dispute before the Ad­ ministrative Tribunal (the “Administrative Tribunal” or the “Tribunal”). On 30 April 2025, the Administrative Tribunal ( Tri­ bunal administratif, 30 avril 2025, n° 47382 ) rendered its decision. Broadly, combining both domestic tax laws andtheprovisionsofthedoubletaxtreatyconcluded between Luxembourg and Poland (“Luxembourg­ Poland DTT”), it ruled that the immovable property, despite being held by a transparent entity, should be taxedwhereitwassituated(i.e.inPoland),andhence excluded from the operating wealth of the Luxem­ bourg taxpayer. Accordingly, the judges of first in­ stance also considered that debt financing the real estate should be treated as nondeductible from the unitaryvalue (1) . Dissatisfiedwiththeoutcome,thetaxpayerultimately lodged an appealwith theAdministrativeCourt. Decisionof theCourt TheAdministrative Court confirmed the decision of the Tribunal on almost all aspects and structured its reasoning around twomain issues: 1. The tax treatment of the real estate property andof the debt that financed such real estate; 2. The nonaggravation principle ( principe de nonag­ gravation ) andEU fundamental freedoms. Tax treatment of the real estate property and related debt TheAdministrativeCourt started its analysis by reaf­ firmingthelegalframeworkonthebasisofwhichthe litigation should be resolved. Similarly to the judges of first instance, it stated that a Luxembourg resident capitalcompanyshould,inprinciple,besubjecttonet wealthtaxonitsworldwidewealth,but,byexception, under § 59 and 73 of the Luxembourg valuation law ( Bewertungsgesetz “ BewG ”) assets that are exempt under other provisions, includingdouble tax treaties, maybeexcludedfromthetaxablebase.Turningtothe LuxembourgPolandDTT,theCourtemphasizedthat a combined reading of Articles 23(2) and 24(1) pro­ videdthatimmovablepropertiesshouldbetaxablein thestatewheretheyweresituatedandthestateofres­ idencemust exempt such assets fromits ownbase. On this basis, as itwas undisputed that thePolishen­ titywas to be treated as transparent for Luxembourg direct tax purposes and that the real estate property waslocatedinPoland,theCourtheldthatPolandhad exclusive taxing rights over it, and it should therefore be excluded fromthe taxpayer’s netwealth tax base. It should be noted that theAdministrative Court did notentirelyfollowthelineofreasoningoftheLuxem­ bourg tax authorities, who broadly considered the Polish entity a foreign permanent establishment (“ PE ”) whose assets and liabilities should, on that basis, be taxed in Poland under Article 23(1) of the LuxembourgPolandDTT. In line with,butmoreexplicitlythan,theTribunal,the Courtheldthatitwasnotnecessaryinthepres­ entcasetoreviewwhetheraPEactuallyexisted since in any event the mere location of the im­ movable property in Poland was sufficient, underArticles 23(1) and 24(1), to allocate taxing rights to Poland notwith­ standing the fact that the property was heldby a transparent entity. On that basis, confirming the po­ sitionoftheLuxembourgtaxau­ thorities and of the Tribunal, the Court rejected the taxpayer’s at­ tempt to value the Polish prop­ erty under the valuation regime applicabletoLuxembourgrealestateproperties.Since the Polish asset was exempt from Luxembourg net wealth tax in thefirst place, thequestionofwhether it could benefit from the Luxembourg valuation rules becamemoot. The Administrative Court then turned to the treat­ mentoftherelatedfinancingdebt.Heretoo,itsanaly­ siswasalignedwiththatoftheTribunal.Appreciating that the Luxembourg–Poland DTT did not contain any specific provisions regarding the deductibility of debts,itconsidered,inlinewiththeOECDCommen­ tary, that this matter should be dealt with in light of domestic lawprovisions. Applying§§ 62 and74BewG, theCourt stressed that onlydebtseconomicallylinkedtotaxablebusinessas­ sets could be deducted, and that debts which were economically connected to assets excluded from the wealth tax base could not reduce the unitary value. Having already found that the Polish property was exempt, theCourt concluded that the loanused tofi­ nanceitshouldlikewisebeexcludedfromdeduction. The Court also endorsed the Tribunal’s reasoning that, since the loan was contracted exclusively to finance the Polish property, it was irrelevant whether its amount might exceed the alleged tax­ exempt value of the asset: economically, the entire debt was deemed tied to an exempt asset. This is probably the most innovative and thus important outcome of the Court’s decision. The nonaggravation principle and EU fundamental freedoms The Administrative Court also addressed the tax­ payer’sargumentsgroundedindoctrinalviewsinin­ ternationaltaxlawontheinterpretationoftaxtreaties, aswell as inEU lawand fundamental freedoms. The socalled nonaggravation principle is a concept developedinlegaldoctrineandcaselaw,accordingto whichdoubletaxtreaties–whoseobjectandpurpose istoavoiddoubletaxationandnottocreateadditional burdens – should not place the taxpayer in a worse positionthanunderdomesticlawalone.Thetaxpayer soughttoinvokethisprincipleinitsdefense,butitwas expresslyrejected. TheCourt distinguished the situa­ tion under review fromearlier case law inwhich the application of a treaty had worsened the taxpayer’s situationincircumstanceswheredomesticlawwould have allowed amore favorable outcome. In the pres­ ent case however, the judges ruled that the nonde­ ductibility of the loan came directly and clearly from domestic valuation rules (i.e. § 62 and 74 BewG) be­ causetherealestatepropertywasconsideredexempt undertheLuxembourgPolandDTT.Itwasnotanag­ gravated outcome created by the treaty itself, and therefore the nonaggravation principle could not be used tooverride thedomesticprohibitionondeduct­ ingdebts linked to exempt assets. Finally, the Administrative Court addressed the EU lawargumentsbasedonthefreedomofestablishment and the free movement of capital. It confirmed that the situation fell primarily under the freedom of es­ tablishment,giventhelevelofparticipationandinflu­ ence in the Polish entity. Referring to case law of the CourtofJusticeoftheEuropeanUnion,theAdminis­ trative Court held that the taxpayer’s situation could notbedeemedcomparabletothatofacompanyhold­ ingdomestic assets, onceLuxembourghas, by treaty, renounced its taxing rights over the foreignproperty. ThejudgesalsounderlinedthatPolanddidnotlevya wealth tax on the asset in question, so there was no foreign negative impact that Luxembourg was obliged to recognize and remedy. Against this back­ drop, the Administrative Court found no restriction ofEUfreedomsandconsideredthattheLuxembourg rules were justified by legitimate objectives such as preserving a balanced allocation of taxing rights and preventingdoubleuseof lossesornegativepositions. On these grounds, the Administrative Court ulti­ mately upheld the judgment of the Tribunal in full, confirming the exclusion of both the Polish im­ movable property and the related financing debt from the taxpayer’s net wealth tax base, and dis­ missed the appeal. Key takeaways This decision is, overall, perfectly aligned with the reasoning adopted by the judges of first instance (except onnonmaterial points) and the outcome it­ self is not surprising: when a double tax treaty allo­ cates taxing rights over foreign immovableproperty to the other contracting state, Luxembourg must bothexempt that asset fromnetwealth taxanddeny the deduction of any debt that is economically linked to it, irrespective of the presence of a fiscally transparent entity for Luxembourg tax purposes. That said, the case also illustrates howquickly com­ plex issues can arise from the interaction between international tax law and domestic provisions. We therefore recommend that taxpayers with cross­ border investments (and relatedfinancing) seek as­ sistance from experienced tax professionals to preemptively avoid unnecessary complications andpotential challenges fromthe Luxembourg tax authorities. EmilienLEBAS, Partner,HeadofInternationalTax,Taxcontroversy& disputeresolution leader,KPMGLuxembourg SylvainRABOUINE, SeniorTaxAdviser,InternationalTax,KPMGLuxembourg 1)Formoredetailonthisdecision,pleasereferto ourarticle:E.Lebasand V.Plateau,“AdministrativeTribunal–Judgmentclarifyingthetreatment ofdebtfinancingforeignimmovableassetsfornetwealthtaxpurposes”, AGEFILuxembourg,July/August2025,Page34. Luxembourg Court of Appeal decision on net wealth tax treatment of foreign real estate held via a taxtransparent structure: Confirmation of treatment of foreign property and related debt L e 12mai 2026, laChambre de Commerce duLuxembourg a accueilli une nouvelle édition des Entrepreneurs’ Days, organisée par laHouse of Entrepreneurship, autour d’une thématique plus ac­ tuelle que jamais : «Développer, optimiser, sécuriser à l’ère digitale ». Cettematinée d’échanges et de par­ tages d’expériences a rassemblé 227 entrepreneurs, experts et acteurs de l’écosystème autour des opportuni­ tés et défis liés à la transformation digitale des PME. Dès l’ouverturede l’événement, les parti­ cipants ont été invités à réfléchir aux enjeux stratégiques de la digitalisation dans un environnement économique en constante évolution. La première session a mis en lumière les décisions clés aux­ quelleslesPMEsontconfrontéeslorsqu’il s’agit d’investir dans le digital, d’aligner leur vision business avec leur stratégie numérique et de mesurer concrètement le retour sur investissement de leurs ini­ tiatives digitales. Les participants ont ensuite pu choisir entre deux parcours thématiques com­ plémentaires. Le parcours « Se rendre visible » a permis de découvrir des bonnes pratiques et retours d’expérience concrets autour de la visibilité en ligne et du développement de sa présence digi­ tale. Enparallèle, leparcours «Gagner en productivité»s’estconcentrésurlesoutils et méthodes permettant aux entreprises d’optimiserleurefficacitégrâceaudigital. La suite de la matinée a été consacrée à des thématiques particulièrement atten­ dues par les entrepreneurs. Une session dédiée au ecommerce a exploré les clés pour réussir saboutique en ligne en2026, notamment à travers les bonnes pra­ tiques pour vendre à l’international. D’autresinterventionsontabordélesstra­ tégies digitales permettant de mieux comprendre son marché et de se diffé­ rencier dans un environnement concur­ rentiel de plus en plus exigeant. Les par­ ticipants ont également pudécouvrirdes outils pratiques pour gagner du temps au quotidien. Après une pause conviviale accompa­ gnée d’un quiz interactif, les échanges se sont poursuivis autour d’unenjeuessen­ tiel : la sécurisation des activités à l’ère numérique. Experts et entrepreneurs ont partagé leurs retours du terrain et leurs recommandations pour mieux protéger les entreprises face aux risques digitaux. Lamatinée s’est clôturée par une session interactive de questionsréponses, suivie d’une présentation des différents dispo­ sitifs d’accompagnement proposés par la ChambredeCommercepoursoutenirles entreprises dans leurs projets de digitali­ sation et de développement. Uncocktailnetworkingetdesstandsd’in­ formationont ensuite permis aux partici­ pantsdeprolongerlesdiscussions,deren­ contrerlesintervenantsetdecréerdenou­ velles opportunités de collaboration. Àtravers cette éditiondesEntrepreneurs’ Days, la House of Entrepreneurship a une nouvelle fois confirmé son engage­ ment à accompagner les entrepreneurs luxembourgeois face aux grandes trans­ formations de leur environnement éco­ nomiqueettechnologique,enleuroffrant des solutions concrètes, des retours d’ex­ périenceinspirantsetunespaceprivilégié d’échanges entre pairs. Source : Chambre de Commerce Entrepreneurs’ Days : Développer, optimiser et sécuriser son entreprise à l’ère digitale ! ©ChambredeCommerce