The Luxembourg Supreme Court (Cour de cassation), through its decision on 3 February 2022 (No. Cas-2020-00163), overruled a judgment issued by the Court of Appeal (Cour d’Appel) on 8 July 2020 (No. 97/20-VII-CIV) and confirmed that a stay of execution (sursis à exécution) granted by the direct tax office (Administration des Contributions Directes) to a taxpayer constitutes an interruptive act vis-à-vis the statute of limitations applicable in the field of direct tax collection.
In the matter at hand, a married couple filed a claim and a request for a stay of execution against two tax assessments issued (respectively in 2005 and 2006) by the direct tax office adjusting their income tax liability determined in fiscal years 2000 and 2001 (the “Disputed Tax Liability”). Upon filing of each claim, the direct tax office agreed to grant (respectively in 2005 and 2006) a stay of execution that prevented the direct tax office to pursue any enforceable action in respect of the Disputed Tax Liability collection until a final tax directorial decision (vis-à-vis the two claims) was issued. Subsequently, the direct tax office initiated two attachment procedures (sommations à tiers détenteur) for the Disputed Tax Liability due in respect of the fiscal year 2000, and cancelled in 2013 the application of the benefits of the two stays of execution. Over the course of 2016 and 2017, the married couple proceeded with several payments of tax liabilities via wire transfers (the “Payments”) but in connection with the fiscal years subsequent to the fiscal years 2000 and 2001 (the “Subsequent years”). In the absence of full payment of the Disputed Tax Liability and the fiscal debt charge related to the Subsequent years (part of the Payments were incorrectly accounted by the tax collector for the settlement of the 2000 Disputed Tax Liability), the direct tax office issued in 2017 a recovery notification followed by a payment order in respect of the outstanding debt liabilities for 2001 and the Subsequent year.
The married couple disagreed with the enforcement procedure and the partial netting realized by the direct tax office in respect of the 2016 and 2017 tax payments vis-à-vis the Disputed Tax Liability. Therefore, the married couple lodged an opposition to the payment order and brought their case before the District Court (Tribunal d’arrondissement) to have the recovery notification declared nil and void. Through a civil judgment rendered by the Tribunal d’arrondissement, the recovery notification issued by the direct tax office was cancelled.
Not succeeding in the first-instance judgement, the tax collector appealed the adverse decision before the Court of Appeal and before the Cour de cassation afterwards.
Analysis performed by the Cour d’Appel
In order to maintain the application of the payment order, the tax collector argues that the statute of limitation was suspended in this case, because the tax authorities were unable to act under the rule "contra non valentem agere non currit praescriptio", having regard to the stays of execution granted at the spouses' request.
With regard to the adage "contra non valentem agere non currit prescriptio" as a cause of suspension of the statute of limitation, the Court of Appeal notes that the spouses invoke a decision rendered by the Cour administrative on 4 October 2001 (No. 13043C) having confirmed a judgment of the Cour administrative of 31 January 2001 (no. 11906) having held that "One cannot accept the reasoning based on the (aforementioned) adage, which consists in admitting that the statute of limitations would have been suspended or interrupted during the period in which the administrative judge was seized of the appeal, because it is not correct to state that the parties, in particular the State, would have found it de facto impossible to act before the final decision of the appeal body, on the contrary (…), the tax collector is not only not prevented from pursuing the recovery during the proceedings, but the tax collector has the power and even the obligation to pursue and take acts of execution, which unlike the acts of the tax office, interrupt the statute of limitation”.
It must therefore be held that the stays of execution granted in 2005 and 2006 respectively did not have the effect of suspending the running of the statute of limitation on the Disputed Tax Liability, and which, in the absence of acts interrupting the 5-year statute of limitation, had passed.
Consequently, the Payments made in 2016 and 2017 could not be set off against the Disputed Tax Liability and the order to pay of 5 April 2017 should be cancelled.
Decision rendered by the Cour de Cassation
Further to the appeal received from the tax collector, the Cour de cassation reminds that paragraph 251 of the amended General Tax Act of 22 May 1931 (the “General Tax Law”) states:
"The lodging of an appeal does not suspend the effect of the contested decision and, in particular, does not prevent the tax authority from taking legal proceedings. The authority which issued the decision may suspend its execution against security”;
together with the general principle of law "Contra non valentem agere non currit praescriptio".
The Cour de cassation declared that the Disputed Tax Liability recognized as prescribed by the Court of Appeal was not effectively time-barred as the two stays of execution were granted before the end of the statute of limitation and that the two stays of execution have effectively constituted a legal obstacle for the tax authorities to collect the Disputed Tax Liability which interrupts the legal statute of limitation applicable in the field of direct taxation matters. As a result, the judges of the Cour d’Appel violated the general principle of law "Contra non valentem agere non currit praescriptio" combined with paragraph 251 of the General Tax Law and cancels the related second instance decision.