On 10 February 2023, the Luxembourg Lower Administrative Court (Tribunal administratif) handed down a judgment regarding the constitutionality of a decision by the municipal council of the town of Diekirch to increase its local property tax rate.
In 2021, the Diekirch municipal council decided to increase the property tax multiplier rate from 750% to 15,000% for certain properties, namely "vacant land designated for residential use” (terrains à batir à des fins d’habitation”). A group of landowners affected by the increase challenged this decision in front of the Lower Administrative Court. The Diekirch municipal council justified the increase by invoking the need to address the housing shortage in the area, the need to dissuade landowners from hording vacant plots and the need to increase the number of planning permit requests.
First of all, the Lower Administrative Court recalled that following a combined reading of the Luxembourg Constitution and the European Charter of Local Self-Government, municipalities are fiscally autonomous and may determine the constitutive elements of their property tax, including the tax base and the tax rate. However, municipalities’ taxing powers are limited by the Luxembourg Constitution, and in particular the principle of equality of citizens before the tax law and the principle of proportionality.
Second, the Lower Administrative Court ruled that the municipality was entitled to increase the rate for a certain category of land, in line with the constitutional principle of municipal autonomy under Luxembourg law. However, the Lower Administrative Court took the view that the increase from 750% to 15,000% was not proportionate. In particular, the Diekirch municipality had failed to present convincing arguments that such a yearly increase was a proportionate response to the stated objectives of the measure. The Lower Administrative Court remarked that (i) the increase did not take into account the fact that landowners may wish to gift the land to their children, (ii) that landowners may not be able to afford the sudden tax increase, or (c) that no delay period was granted to landowners to introduce planning permit requests or sell their land.
The Lower Administrative Court concluded that the increase of the multiplier rate from 750% to 15,000% amounted to an exorbitant increase contrary to the constitutional principle of proportionality.
The Lower Administrative Court therefore annulled the decision of the Diekirch municipal council deciding the increase, and partially annulled the ministerial order to the extent that it approved the increase.
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