Question on the constitutionality of the minimum net wealth tax regime

In a judgement dated 18 April 2023 (docket n° 45910), the Lower Administrative Court (Tribunal administratif) referred to the Constitutional Court the question of whether the difference in treatment between holding companies, and other Luxembourg companies with regard to minimum net wealth tax complies with article 10bis of the Luxembourg Constitution (equality before the law).

As a reminder, the Luxembourg minimum net wealth tax regime currently provides that companies are subject to a minimum wealth tax which is generally determined according to the size of their balance sheet and can range from EUR 535 to EUR 32,000. By way of exception, a flat-rate minimum net wealth tax of EUR 4,815 applies to companies whose financial assets, transferable securities, cash and receivables owed by affiliated companies exceed both (i) 90% of their total balance sheet and (ii) EUR 350,000. Holding companies generally fall within the scope of the flat-rate minimum net wealth tax.

The case at hand concerned a company that fulfilled the conditions to be subject to the minimum flat-rate net wealth tax of EUR 4,815. However, given the size of its balance sheet, it would only have had to pay a minimum net wealth tax of EUR 1,605 if it had not passed the 90% threshold, i.e. if a smaller portion of its balance sheet had been composed of financial assets. As the company felt that it was treated worse than other companies in a similar situation in terms of size, it decided to appeal against the tax assessments before the Lower Administrative Court. The Lower Administrative Court found that there was indeed a differential treatment between companies of equal size based solely on the criterion of the composition of their balance sheet. It also found that, during the procedure, the government representative had not provided an explanation that could justify this difference in treatment. Since the matter ultimately raises a question of compliance of a law with the Luxembourg Constitution, and more specifically with the principle of equality before the law, laid down in article 10bis, the Lower Administrative Court decided to stay the proceedings and to refer the question to the Constitutional Court which has exclusive competence to rule on the constitutionality of laws.

As a result of the procedural rules applying before the Constitutional Court, a decision may be expected by the end of 2023 or in early 2024. In case the Constitutional Court comes to the conclusion that the minimum net wealth tax regime for companies holding predominantly financial assets is indeed unconstitutional, a reform of this regime is to be expected which could impact Luxembourg holding structures.

Pol Mellina

Olivier Schank
Senior Associate