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Aurore Calvi
Managing Director, OmniTrust, Luxembourg

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Aurore Calvi is the Managing Director of OmniTrust. With a distinguished career spanning over 25 years in a Big Four accounting firm and various fiduciary organisations, she has held the position of CFO at Capita Assets Services/Link starting in 2009 and became a CSSF-authorised director in 2015, a role she fulfilled until her departure in late 2018. In 2019, she founded OmniGroup. Since 2022, she has been a board member of the Order of Chartered Accountants of Luxembourg, representing small and medium-sized firms within the profession at the board level.

Luxembourg wealth tax found to be unconstitutional

June 12, 2024

The Luxembourg wealth tax has been found unconstitutional in a landmark ruling on 10 November 2023. The Constitutional Court of Luxembourg found point 2(a) of paragraph 8 of the amended law from 16 October 1934, part of the wealth tax legislation known as the “Vermögensteuergesetz” (VStG), to be unconstitutional. This provision, amended on 23 December 2016, has been a cornerstone of Luxembourg’s wealth tax framework.

Paragraph 8 of the VStG specifies:

  • Standard Tax Rate:
  • Assets ≤ EUR 500 million: Tax rate of 0.5%.
  • Assets > EUR 500 million: EUR 2.5 million plus 0.05% on the amount exceeding EUR 500 million.
  • Special Provisions:
  • Minimum tax of EUR 4,815 if financial assets exceed 90% of the balance sheet total and EUR 350,000.
  • Graduated minimum taxes based on the balance sheet total, ranging from EUR 535 for balance sheets ≤ EUR 350,000 to EUR 32,100 for those exceeding EUR 30 million.

Key points of the court’s decision

The Constitutional Court’s ruling was based on two key constitutional principles:

  1. Equality Before the Law: Article 15 of the revised Constitution mandates equality for all citizens.
  2. Taxpayer’s Ability to Pay: Taxes should reflect the taxpayer’s financial capacity.

The Court determined that the EUR 350,000 threshold for financial assets in point 2(a) lacked rational justification, thus infringing on these principles. Consequently, this provision was declared unconstitutional effective 1 July 2023.

Impact on affected companies in Luxembourg

The decision significantly affects companies with a balance sheet total between EUR 350,000 and EUR 2 million, where financial assets make up over 90% of the total. For these companies, the applicable minimum net wealth tax should now be EUR 1,605 instead of EUR 4,815, aligning with point 2(b) of paragraph 8.

Interim measures and future implications

Pending new legislation, the Court recommends applying the more favourable point 2(b) provision whenever it benefits the taxpayer more than point 2(a). This ruling underscores the necessity for rational and equitable tax thresholds, ensuring fair treatment of all taxpayers.

This decision prompts a review of Luxembourg’s wealth tax laws to better align them with constitutional principles, providing clarity and fairness within the tax system. Businesses and financial professionals in Luxembourg should stay informed of legislative updates to ensure compliance and optimise their tax strategy.

Why this decision is important for international tax

This decision is significant for several reasons:

  1. Precedent Setting: Luxembourg’s ruling sets a precedent for other jurisdictions with similar wealth tax structures. Countries observing Luxembourg’s approach may reevaluate their own tax laws to ensure they meet constitutional standards and do not disproportionately burden taxpayers.
  2. Impact on Multinational Corporations: Many multinational corporations use Luxembourg as a base for their European operations due to its favourable tax regime. Changes to the wealth tax law could influence these companies’ financial strategies, including how they allocate and report assets.
  3. Tax Planning and Compliance: Companies with substantial operations in Luxembourg must reassess their tax planning and compliance strategies. Understanding the nuances of the new legal landscape will be crucial for optimizing tax liabilities and ensuring adherence to the law.
  4. Investor Confidence: Legal certainty and a fair tax system are vital for maintaining investor confidence. This ruling, by aiming to align tax laws with constitutional principles, seeks to uphold Luxembourg’s reputation as a stable and attractive destination for investment.
  5. Broader Implications for Tax Policy: The ruling highlights the importance of aligning tax policy with constitutional principles, which could inspire broader discussions on tax fairness and equity in international tax policy forums.

If you would like to speak to an expert on tax in Luxembourg, please get in touch.