Unconstitutionality of the minimum net wealth tax provision

Posted - 21.11.2023

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Now reading : Unconstitutionality of the minimum net wealth tax provision

On 10 November 2023, the Constitutional Court held that the legal provision in the net wealth tax law which provides for a different treatment in minimum net wealth tax (i.e. a flat rate or a progressive rate) depending on the company’s balance sheet composition is unconstitutional as it gives rise to a discriminatory treatment of persons being in a comparable situation.

Therefore, pending a legislative amendment to the minimum net wealth tax (“NWT”) article, the progressive rate must be applied to the taxpayer (instead of the flat rate) whenever this one is more favourable.

Background:

Under paragraph 8 (2) of the law of 16 October 1934 regarding the NWT, as amended (also called “Vermögensteuergesetz”, or “VStG”), the minimum NWT due depends on the company’s balance sheet as follows:

  • a flat minimum NWT of EUR 4,815 (“Flat Minimum NWT”) applies to entities with financial assets, receivables on related entities, transferable securities and cash at bank exceeding 90% of their total balance sheet (“90% Threshold”) and EUR 350,000,; 
  • a progressive minimum NWT ranging between EUR 535 and EUR 32,100 depending on the company’s total amount of balance sheet (“Progressive Minimum NWT”) applies for all other companies which are subject to net wealth tax:
Total amount of balance sheet Minimum NWT
<=EUR 350,000 EUR 535
>EUR 350,000 and <=EUR 2,000,000 EUR 1,605
>EUR 2,000,000 and <=EUR 10,000,000 EUR 5,350
>EUR 10,000,000 and <=EUR 15,000,000 EUR 10,700
>EUR 15,000,000 and <=EUR 20,000,000 EUR 16,050
>EUR 20,000,000 and <=EUR 30,000,000 EUR 21,400
>EUR 30,000,000 EUR 32,100

In light of these rules, a company with a total amount of balance sheet ranging between EUR 350,000 and EUR 2,000,000 will be subject to either the Flat Minimum NWT of EUR 4,815 or the Progressive Minimum NWT of EUR 1,605 depending on whether it meets the 90% Threshold or not.

In a judgement dated 18 April 2023 (No 45910), this different tax treatment was raised to the Lower Administrative Court (Tribunal administratif) by a company noting that the Government's representative was unable to justify it during the proceedings.

The Lower Administrative Court therefore referred to the Constitutional Court the question of whether this different tax treatment complies with the principle of equal treatment before the law of Luxembourg (Article 10bis (1) of the Luxembourg Constitution). Discrimination under this rule arises when categories of persons are subject to a different treatment while being in a comparable situation.

On 10 November 2023, the Constitutional Court held that paragraph 8 VStG (2) providing for the Flat Minimum NWT is contrary to Article 10bis (1) of the Luxembourg Constitution (see ruling n° 00185). The Constitutional Court consequently concluded that, pending a legislative amendment to the minimum NWT provision, the Progressive Minimum NWT must be applied to the taxpayer (that is subject to the Flat Minimum NWT under the current legal provision) whenever this one is more favourable. 

In practice, this means that taxpayers meeting the 90% Threshold and having a total amount of balance sheet ranging between EUR 350,000 and EUR 2,000,000 will pay a Progressive Minimum NWT of EUR 1,605 instead of the Flat Minimum NWT of EUR 4,815 (at least until paragraph 8 VStG (2) is amended). For those having a total amount of balance sheet above EUR 2,000,000 (and meeting the 90% Threshold), the Flat Minimum NWT shall continue to apply (as it is more favourable to the taxpayer in this case).

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