AGEFI Luxembourg - avril 2024

AGEFI Luxembourg 38 Avril 2024 Emploi / Droit By Emilien LEBAS, Partner, International Tax, Tax controversy & dispute resolution leader and Valentine PLATEAU, Assistant Manager, International Tax, KPMG Luxembourg O n 5March 2024, the Luxem- bourg administrative Court of Appeal (Cour administrative, 5 mars 2024, n°49365C, 49366C and 49367C) rendered a series of judgements (together, the “three cases” or the “cases”), all relating to the same issue surrounding the statistical classification of economic activities in the European Community (“NACE” (1) ) code assigned by the National Insti- tute of Statistics and Economic Studies of the GrandDuchy of Luxembourg (“STATEC” (2) ). In all those cases, the Luxembourg administrative Court of Appeal (the “ Court of Appeal ” or the “ Court ”) confirmed the position sustained by the Luxembourg Administrative Tribunal (the “ Tri- bunal ”), which ruled that theNACE code attributed to the company by STATEC was consistent with its object, hence rejecting the taxpayer’s claim to have it replaced for another NACE code, supposedly more in line with its activity (3) . These three cases share the same fact pattern: As they have been pleaded by the same attorney, supported by the same arguments fromparties,andresultedinthesameconclusionfrom the Court, theywill be analyzed jointly in this article. Differences, where noteworthy, will be highlighted. Summary of the cases In those cases, the taxpayers were, respectively, two alternatives investment funds (AIF) under the legal form of a société en commandite simple (SCS), and one investment fund under the legal form of a société en commandite spéciale (SCSp). The companies contested the NACE number as- signedby STATEC: - Inboth cases involvingAIFs under the legal formof an SCS, the procedure consistedof two steps: 1. Taxpayers initiallycontested the initialNACEcode assignation64.301referringto“Mutualfunds”( Fonds communs de placement (FCP) ), following which STATEC reclassified them into category 64.309 refer- ring to “Other collective investment undertakings” ( Autres organismes de placement collectif ) 2. Once again, they challenged the newclassification, and requested via email the reclassification of their company under the category 64.202 “Financial hold- ing companies” ( Sociétés de participations financières, “ SOPARFI ”), which would benefit from the annual flat-ratecontributiontotheChamberofCommerceof EUR 350. STATEC, however, maintained its position this time, whichgave rise to the current disputes. - In the case involving the SCSp, the taxpayer con- testeditsclassificationinthecategory64.309 Othercol- lective investment undertakings, claiming it should fall into the category64.202 Financial holding companies in- stead, which STATECdenied. The taxpayers subsequently requested the STATEC directortoreviewtheirclassification,butwithoutsuc- cess.Asperthedirector’sexplanations,anyfundsthat do not take the form of investment companies with variable capital (SICAV), investment companieswith fixed capital (SICAF), investment companies in risk capital(SICAR),ormutualfunds(FCP)-whetherreg- ulatedor not - should fall under the category 64.309. For the sake of entirety, the director also added that the mere holding of financial assets on the balance sheet’s assets sidewouldnot be sufficient to be clas- sified as a SOPARFI. It would also be necessary (among other requirements) that themajority of the holdings be held at over 50%andbelong to a clearly defined group of companies – which, he observed, was not the case here. The cases were subsequently brought to the Tribu- nal, which ruled in favor of STATEC. Unsatisfied with theoutcome, the taxpayers respectively lodged an appeal to the Court. Context of the decision To put things into perspective, it is important to un- derstand that theNACEcodeprovided toeachcom- pany by STATEC allows the Chamber of Commerce to compute the yearly contribution.All entities regis- tered as commercial companies in Luxembourg are obligated topayayearly fee to theChamber ofCom- merce, regardless ofwhether theyhave legal person- ality. The Chamber of Commerce contribution is generally computed based on the commercial profit ofthecompanies(ofyearN-2).However,entitiesclas- sifiedas SOPARFI underNACE64.202 are eligible to pay aminimumlump-sumfee of EUR350. In addition to the above, the fact that several judg- ments related to the NACE classification were pub- lishedon the same day confirms our impression that the issue ofwhich categorya company falls into (and consequently, the amount of the contribution it will ultimatelyhavetopaytotheChamberofCommerce) isfarfromclearforcorporatetaxpayers.Severalcom- panies recently approachedus regarding thismatter, andwhilethesedecisionsleavemanyquestionsunan- swered, they nonetheless allow us to provide some pieces of information in response. Asconfirmedbybothcourts,thecompanies’objects- asmentionedintheirrespectivearticlesofassociation and referred to in their financial statements - should bethefirstelementuponwhichSTATECshouldbase its assessment. As these are public information, they are deemed to be accurate and up to date; thus, STATEC is not legally compelled to go beyond those items to further assess the companies’ situation and assign aNACE code accordingly. The judges dismissed the taxpayers’ argument, which linked the regulation of 12 November 2010 (4) , article 14 of the Luxembourg income tax law (“ LITL ”) and Circular LITL No. 14/4 of 9 January 2015, to demonstrate that they failed to generate any commercial income and insisted that they should haveprovidedevidenceoftheSOPARFIactivitythey claimed to have. However, the claimants’ failure to demonstrate this does not render theNACEattribu- tion operated by STATEC right. In particular, we would also think that, based on the aforementioned legal texts, anunrelatedAIFwith the legal formof an SCSorSCSpshouldnothaveanycommercialprofits, as definedby theLITL, hencemakingNACE64.309, forwhich theChamber ofCommerce contribution is basedonaproportionalrateonthebasisofataxbase constituted by commercial profits, incorrect. Thesedecisions contrastwithanother one, alsopub- lished in2023,which the taxpayers attempted to rely on (5) . In this case, the dispute revolved around the amount of the contribution determined by the ChamberofCommerce.Thetaxpayer,whichwasan AIF under the legal form of an SCS, attempted to lower the amount of contribution it would be liable to, on the grounds of the absence of any commercial income. It did so successfully, as the Tribunal con- cluded that it was not established that the taxpayer generated income that could be classified as com- mercialprofitswithinthemeaningofArticle14LITL. It consequently ruled that theamount of theplaintiff company’s annual contribution - com- puted by the Chamber of Commerce –was incorrect. Decision of theCourt The three cases are structured in identical fashion. Regarding procedural matters, the Court of Appeal rejects the invocation of Article 9 of the Grand Ducal Regula- tion - dated 8 June 1979 - by the taxpayers. This article essentially im- poses an obligation on administrativeauthorities to inform taxpayers of in- dividualadministrativeacts that have a negative impact on a legitimately acquired ad- ministrativestatus.Asperitsprovisions, a minimum period of eight days must be granted to themso that theymaypresent their obser- vations. TheCourt observes that thedueprocess out- lined in said article had been duly adhered to, given that the situationof the taxpayerhadnot beenaltered exofficio bytheSTATECofficers.Instead,thetaxpayers were able to engage with STATEC and its director, whichmoreover, resulted - for two of the cases - in a change of the initial classification. TheCourt thennotes the argument raisedby the tax- payers according to which their classification in the category Othercollectiveinvestmentundertakings directly subjects them to the degressive contributions of the ChamberofCommerce,calculatedbasedoncommer- cial profits: -InthecaseswherethetaxpayerswereAIFs,theyraise that, as per Article 14 LITL supported by its related circular of 2015, where an AIF is constituted in the formofalimitedpartnershiporaspeciallimitedpart- nership, it would be deemed not to carry out a com- mercial activity due to not having a commercial purpose, but an investment purpose. -Inthethreecases,taxpayersemphasizethattheypri- marily engage in intra-group transactions, so there would be no dealing with third parties outside the group. Their activity, insofar as it consists of the col- lective investment of all funds available to it inawide rangeofsecuritiesandassets,mainlyinstocksandin- terests, as well as in the holding andmanagement of theseinterests,wouldnotconstituteacommercialac- tivityas it doesnot exceed the scopeof privatewealth management. - In the three cases, they also argue that in order to be considered as engaging in a commercial activity (i.e., commerciallytainted, théoriedel’empreintecommerciale ), theirgeneralpartnerwouldberequiredtobeacapital company holding at least 5% of its interest units, which is not the case as the latter hold less than5%of its interest units. - In the three cases, they also invoke the fact that their entities are limited partnerships, fiscally transparent, and therefore their income would not be taxable in their namebut onlyat the level of their partners,who are not residents inLuxembourg. Thejudgerecallsthatthelitigiousquestionis whether STATEC had appropriately classified the taxpayer under the NACE code number 64.309 referring to Other collective investment undertakings . In line with STATEC’s and the Tribunal’s stance, the Court maintains that the object of the companies, as outlined in their respective articles of association, should be the primary indicator for the category in which they should be classified. It further sustains that, as those status aim to informboth shareholders and third parties, they are deemed to be accurate, and a more in-depth analysis from STATEC to de- termine whether the companies actually engage in adifferent activity thatwouldallowthemtobenefit from a more favorable status, should not be ex- pected. In the cases at hand, the Court notes that, based on the object of the companies as stated in their articles of association (whichwas corroborated by some of the notes in the annual accounts), it does not appear that their activity consistedprimarily of holding financial interests in other companies. It further rules, albeit arguably, that the question of whether a commercial profit is actually realized is “ completely ” unrelated to the decision of the STATECdirector not to classify those entities under the category Financial Holding Companies – Soparfi . The Court thus rejects the taxpayers’ claims and confirms STATEC’s NACE classification. Following this judgement, our immediate recom- mendation would be to draft with care articles of association when establishing an SCS or an SCSp, in particular those relating to its object, bearing in mind thepotential implications theymayhave later on the annual contribution due to the Chamber of Commerce. As mentioned above, the outcome of the decision is surprising, given the fact that the Tribunal ruled the opposite in a similar case (as referred to above) (6) , where the Chamber of Commerce’s computation of thecontributionwaschallenged.Whenjuxtaposed,it seems that the conclusion to be drawn from those judgments is that: - Unlike STATEC when defining the NACE classifi- cationof taxpayers, theChamber ofCommerce isnot allowed to conduct a cursory examination of the tax- payer’s situation. Instead, it is incumbent upon the Chamber of Commerce tometiculously ascertain the companies’commercialprofits,uponwhichthecom- putationof their contribution shall be based. - On the other hand, given that STATEC is only re- quired to conduct a superficial reviewof companies’ activities (i.e., as indicated to third parties in its docu- mentation published on the Luxembourg Business Registers(RCS)),theobligationtoprovethatitsactual activitydiffers lieswith the company itself. ThefactthatnoappealhasbeenlodgedbytheCham- ber ofCommercein the above case (7) suggests that the latterdoesnotcontesttheheightenedrequirementim- posedupon it by the Tribunal. As a result, although the two issues (i.e. challenge on the computation of the contribution or challenge on theNACEclassification)maybelinked,itappearsim- portant to consider these caseswhendrafting articles of association for such entities. Moreover, it is advis- able, in the event of adispute, to challenge the assess- ment issued by the Chamber of Commerce rather than theNACE classificationmade by STATEC. Nevertheless, exercising caution and awaiting future case lawtohopefullyprovide clarityon thismatter is recommended.Given the increasingnumber of chal- lenges, thewait shouldnot be too long. 1) Standing for Nomenclature statistique des Activités économiques dans la Communauté Européenne 2) Standing for Institut national de la statistique et des études écono- miques duGrand-Duché de Luxembourg 3) Respectively, Administrative Tribunal, 20 July 2023, n°47313, 47314, 47315 4)RèglementdecotisationdelaChambredeCommercedu12novembre 2010. 5)Administrative Tribunal, 20 July 2023, n°46566. 6) Decision of theAdministrative Tribunal, 20 July 2023, n°46566. 7) Decision of theAdministrative Tribunal, 20 July 2023, n°46566. Tax controversy series Administrative court of appeal judgments on the classification of a company’s activities / NACE L ’Union des Entreprises Luxembour- geoises (UEL), en collaboration avec ses membres, et la Federation for Re- cruitment, Search&Selection (fr2s) ont réalisé fin 2023 le second baromètre de l’emploi auprès des cabinets de recrute- ment du Luxembourg. Les résultats identifient des levierspour relancer l’at- tractivitédupays.Lesdonnéesdusecondbaromètre permettent de suivre l’évolution des besoins des entreprises et des candidats ainsi quede l’attractivité du Luxembourg. En outre, ce second baromètre améliore la qualité et la pertinence des résultats, en prenant en compte les retours des membres de la fr2s. Finalement, il appréhende plus en détail cer- taines dimensions supplémentaires, notamment les régimes fiscaux. Le baromètre de l’emploi 2024 a permis d’extraire les cinq enseignements clés suivants : - Les entreprises recherchent trop souvent des profils similaires - Lemarché de l’emploi est trop axé sur des rôles dits «règlementaires» - Les difficultés de recrutement persistent -L’indexationdessalairesn’estpasunargumentpour recruter à l’étranger - Il existe des leviers pour relancer l’attractivité du Luxembourg «Avec ce Baromètre, l’intention de l’UEL est d’ob- jectiver la situation du marché de l’emploi et de comprendre les leviers, notamment fiscaux, sur les- quels nous pouvons agir pour attirer des talents au Luxembourg» déclareMichel Reckinger, président de l’UEL. «La fr2s se réjouit de la poursuite de ce projet avec l’UEL qui renforce l’ambition commune de pro- mouvoir le marché du travail luxembourgeois au- delàde laGrandeRégion. Le baromètrede l’emploi est un outil d’analyse et de suivi du marché du recrutement ayant pour mission de donner aux employeurs et aux recruteurs les clés pour mieux comprendre les candidats et attirer des talents au Luxembourg» affirme Gwladys Costant, co-prési- dente de la fr2s. Informations complémentaires : https://lc.cx/mv_Rcj Second baromètre de l’emploi auprès des cabinets de recrutement Les talents, un défi de taille pour le Luxembourg