Agefi Luxembourg - juillet août 2026

Juillet / Août 2026 39 AGEFI Luxembourg Droit & Emploi ThibaultWestonSmith,Managing Partner&cofondateur&Mathias Flattin, Managing Partner & cofondateur, Crayon Partners Vendredi 18 septembre de 11h45 à 14h15 Lunch Ecofin Club à l’Hôtel Parc Belair Goeres Hotels Luxembourg «La locationaccession:unenouvellevoievers lapropriété pour desmillions dʹEuropéens » Paf membres : 75€ ttc pp (Apéro networking & lunch 3 services compris). Paf nonmembres : 85€ ttc pp en découverte et max. 1 visite avant adhésion. Àverser sur le compte bancaire : BIC GEBABEBB IBANBE73 0015 4949 3760 – Réf.18/09 Lieu : 111, Avenue du X Septembre L2551 Luxembourg Parking dans lʹhôtel en fonction des disponibilités Info club & devenir membre : www.ecofinclub.lu didier.roelands@ecofinclub.lu O n 27 March 2026, the Luxembourg Administrative Tribunal ( Tribunal administratif, 27 mars 2026, n°49200 ) (the “Administrative Tribunal” or the “Tribunal”) ruled on whether a Luxembourg company (the “Taxpayer”) could relyona 2015 ruling confirm­ ing the tax treatment of income and net wealth allocated to an allegedUSpermanentestablish­ ment (“PE”), despite failing to satisfy one of its conditions. The Taxpayer belonged to a group headedbyaUSparentcompany(the “ USParent ”)andhadbeenincorpo­ rated as part of awider restructuring connectedwith theacquisitionofaUStarget. InMarch2015,theTax­ payer applied for a tax rulingunder §29a of theGen­ eral Tax Law ( Abgabenordnung, “ AO ”), seeking confirmation of the Luxembourg tax treatment of in­ come andnetwealth allocated to an allegedUSPE. On the sameday, it resolved to establishaUSbranch (the “ Branch ”) responsible formanaging intragroup financialassets.TosupporttheBranch’sactivities,the Taxpayer entered into a services agreement under whichtheUSParentagreedtoprovidepersonnel,in­ cluding a branch manager, management and ac­ counting support, and office premises. InJune2015,thetaxofficeacceptedtherequestedtax treatment outlined in the tax ruling, subject to one condition:withintwoyears,theTaxpayerhadtopro­ vide evidence that the US tax authorities recognized the Branch as a PE under the double tax treaty con­ cluded with Luxembourg (the “ LuxembourgUS DTT ”).Therulingwasexpressedtoapplyforthetax years 2015 to 2019. The Taxpayer never produced such evidence, either withintheprescribedperiodorduringthesubsequent reviewof its tax returns for 2016 to 2019. In September 2021, the tax office informed the Tax­ payer that it intended to depart from the tax returns on the basis that the Branch did not qualify as a PE and that the related income and net wealth therefore didnotqualifyforexemptionundertheLuxembourg­ USDTT.TheDirectoroftheLuxembourgtaxauthor­ ities rejected the Taxpayer’s administrative claim ( réclamation ) inApril 2023, following which the Tax­ payer appealed to the Tribunal. Decision of the Tribunal The Tribunal dismissed the appeal in its entirety. Its reasoning is particularly instructive on two issues: The limits of a conditional advance tax ruling, and The evidentiaryburdenrequired toestablish the ex­ istence of a foreignPE. It also addressed the principles of legitimate expecta­ tions and equal treatment, although these aspects were ancillary to its analysis. The limits of conditional tax rulings The Taxpayer argued that it remained entitled to rely on the 2015 ruling despite not having compliedwith its condition. First, it submitted that the condition was unlawful because neither Luxembourg domestic law nor the LuxembourgUS DTT required formal confirmation by the US tax authorities for a PE to exist. In the Tax­ payer’sview, the taxoffice couldnot imposeanaddi­ tional requirement affecting the allocation of taxing rights under the treaty. Second, it argued that the conditionwas impossible to satisfy because the US tax authorities do not issue the type of confirmation requested. Relying on the principle that no one can be required to perform an impossible act, the Taxpayer contended that the con­ dition shouldbe disregarded. The Tribunal rejectedboth arguments: It first held that the alleged impossibility had not been substantiated. The Taxpayer had produced no evidencethatithadattemptedtoobtaintherequested confirmationor that theUS authorities had indicated that such confirmation could not be issued. The Tri­ bunal stressed that the Taxpayer was not required to provide an impossible negativeproof, but at the very least it was expected to demonstrate the steps it had taken to complywith the condition. Second,theTribunalcriticizedtheTaxpayer’spassive conduct. If it genuinely considered the condition im­ possible to satisfy, it shouldhave informed the tax of­ fice promptly so that the ruling could, where appropriate,bemaintained,amendedorwithdrawn. Instead, the Taxpayer applied the ruling in its tax re­ turnswithoutraisinganydifficulty.TheTribunalalso noted that the Taxpayer answered “no” to the ques­ tion in its tax returns asking whether it had been the subjectofanadvancetaxagreement.Thisconductwas heldtobeinconsistentwiththeTaxpayer’sdutytoco­ operate ingood faithunder §166AO. The Tribunal likewise rejected the Taxpayer’s re­ lianceon the “reasonableness limit”under §171AO, holding that, in the case at hand, the evidentiary burden imposed on the Taxpayer to substantiate its tax returndidnot exceedwhat could reasonably be expected of it. Existence of aUSPE for the tax years 2016 to 2018 For the years 2016 to 2018, the Tribunal assessed the existenceof theallegedPEunderArticle5of theLux­ embourgUS DTT, interpreted in light of the OECD Model Tax Convention Commentary. It recalled the four cumulative conditions for the existence of a PE: 1.Aplace of business; 2. whichmust be fixed; 3. through which the enterprise carries on all or part of its business; and 4. whose activity is not merely preparatory or auxiliary. TheTribunalprimarilyfocusedonthatthirdcri­ terionandconcludedthatithadnotbeenestab­ lished. Whenrequestedtoprovideminutes,reports or other supporting documents, the Taxpayer submitted only one bank statementpertaxyear,eachcovering a single month. The Tribunal con­ sidered this manifestly insufficient todemonstratethatbusinessactiv­ ities had been carried on through theBranchorthattransactionshad beendecidedormanaged locally. The Tribunal emphasized that the contractual avail­ ability of personnel and office premises does not, in itself,demonstratethatbusinessactivitiesareactually carriedon through a fixedplace of business. Similarly,acontractualdescriptionoffunctionscannot, byitself,demonstratethatthosefunctionswereeffec­ tively performed. This conclusion was reinforced by two additional findings: First,noinvoiceswereissuedbytheUSParentunder the services agreement, no remuneration was paid, and no corresponding charge was recorded, despite the contractual terms providing for remuneration for services. Second, the Taxpayer did not maintain separate ac­ countingrecords for theBranch, notwithstanding the arrangements contemplated by its documentation. Although not decisive on its own, this factor sup­ ported the conclusion that the alleged Branch lacked genuine operational activity. For completeness, the Tribunal also considered that the first two conditions of Article 5 of the DTT were not established. The Taxpayer relied principally on photographs of office premises displaying office equipment and a sticker bearing the Branch’s name. TheTribunalregardedthesephotographsas,atmost, a beginning of proof, but insufficient on their own. ExistenceofaUSPEforthetaxyear2019andthenew § 16(5) StAnpG For 2019, the parties also debated the new § 16(5) of the Tax Adaptation Law ( Steueranpassungsgesetz , “ StAnpG ”), applicable as from1 January 2019. The Tribunal reaffirmed that the existence of a PE mustprimarilybeassessedunderArticle5oftheLux­ embourgUSDTT.However,sincethetreatydoesnot define the expression “ through which an enterprise car­ riesonitsbusiness ”,Article3(2)oftheLuxembourgUS DTT (1) permits recourse to domestic law to interpret thatexpression.Onthatbasis,Luxembourgcouldrely on § 16(5) StAnpG to assess whether the alleged US activity, considered in isolation, constituted an inde­ pendentactivityparticipatinginthegeneraleconomic lifeand,whereappropriate,requireconfirmationthat the PEwas recognizedby the foreign tax authorities. Nevertheless, theTribunalmade clear that its conclu­ sionfor2019didnotrestsolelyontheabsenceofsuch confirmation. Since the Taxpayer relied on the same factualevidenceasfortheprevioustaxyearsandpro­ ducedno additional documentation capable of alter­ ing the analysis, the Tribunal applied the same reasoningandconcludedthattheexistenceofaUSPE had likewise not been established for 2019. Key takeaways ThisjudgmentconfirmsthattheLuxembourgcourts continue to adopt a rigorous, evidencebased ap­ proachwhen assessing the existence of foreign per­ manent establishments (2) .While the burden of proof has long rested on the taxpayer, the decision illus­ trates that legal documentation alone – such as branch registrations, service agreements, board res­ olutions, the appointment of personnel or access to office premises –will rarely suffice. Taxpayersmust also be able to produce contemporaneous evidence demonstrating that the branch actually performed the functions attributed to it and that business deci­ sionsweregenuinely carriedon through the alleged place of business. What distinguishes this case from a more conven­ tional PE dispute is the advance tax ruling dimen­ sion. The Taxpayer had sought legal certainty from the Luxembourg tax authorities and obtained a rul­ ing confirming the intended tax treatment, albeit subject toa condition requiringevidence that theUS tax authorities recognized thePE. The case therefore illustrates that the certainty afforded by an advance rulingmay be limited if its application ismade con­ ditional upon an event or confirmation from a for­ eign administration. At the same time, the Tribunal’s criticism of the Tax­ payer’sconductappearsdifficulttodispute.TheTax­ payerfailedtodemonstratethatithadtakenanysteps toobtaintherequestedconfirmation,producednoev­ idence that such confirmation could not be obtained underUS lawor administrative practice, anddidnot alert theLuxembourg taxauthoritiesbeforeapplying the ruling in its tax returns. The judgment therefore underlines that taxpayers cannot simply ignore conditions attached to rulings or treat themas amere formality. Where compliance withaconditionbecomesuncertainorimpossible,the issueshouldberaisedwiththetaxauthoritieswithout delay rather thanonly in the course of a tax audit. We will closely monitor the outcome of the pending appeal. Emilien LEBAS, Partner, Head of International Tax, Tax controversy&dispute resolution leader, SylvainRABOUINE, Senior TaxAdviser, International Tax, KPMGLuxembourg 1) Article 3(2) LuxembourgUS DTT: “As regards the application of the Convention by a Contracting State any term not defined therein shall,unlessthecontextotherwiserequiresorthecompetentauthorities agree to a common meaning pursuant to the provisions of Article 27 (Mutual agreement procedure), have the meaning that it has under the lawofthatStateconcerningthetaxestowhichtheConventionapplies.” 2) See also our other articles on this topic: E. Lebas and V. Plateau, “Administrative Court –Appeal decision on US branches”, AGEFI Luxembourg, April 2026, Page 41. E. Lebas and V. Plateau, “Administrative Court – Judgment on re­ qualification of interestfree loan as hidden capital contributions”, AGEFI Luxembourg, May 2025, Page 38. E.LebasandV.Plateau,“Administrativecourtjudgmentontaxruling and permanent establishment”, AGEFI Luxembourg, October 2023, Page 8. E.LebasandV.Plateau,“Administrativecourtofappealjudgmenton US branch”, AGEFI Luxembourg, March 2024, Page 40. Judgment on a US branch and the applicability of a tax ruling regarding the existence of a PE