In the course of the year 2017, an employee of Company A prepared and filed the 2015 tax return for Company B, a subsidiary of Company A. The employee however had no authority to do so. A few weeks after filing the tax return, the tax office issued a net wealth tax assessment on the basis of §100a (hereinafter a “100a Assessment”) of the Luxembourg general tax code (Abgabenordung hereinafter “AO”), which is exclusively based on the filed tax return without the tax office having carried out any investigation on the correctness of the content of the tax return. Such an assessment can then be reviewed and challenged by the tax authorities within a period of 5 years (or 10 years in certain cases). When the employee received the 100a Assessment, a mistake in the tax return and the resulting 100a Assessment was noticed and the tax office in charge was contacted. The mistake was pointed out and a request for rectification of the mistake was made but the tax office did not answer.
After Company B, in turn, realized that an incorrect tax return had been filed by an unauthorised person and that incorrect assessments were issued, it contacted the tax office explaining the situation and tried to file an amended tax return. The tax office did not take the amended tax return into account as the 100a Assessment had in the meantime become final, given that no action had been taken by the taxpayer during the 3 months’ appeal period following their notification. As a result, Company B decided to ask for a tax forgiveness under §131 AO which was rejected by the director of the Luxembourg tax authorities and by the Lower Administrative Court (Tribunal administratif).
The Higher Administrative Court (Cour administrative) once again confirmed that a tax forgiveness under §131 AO is not a venue to challenge the basis of the taxation, but is to be granted only in cases where the taxpayer's personal situation is such that a subjective inequity arises (e.g. the payment of the tax would endanger his economic existence for reasons out of his own hands) or if the application of the tax legislation leads to an objective inequity, i,e, an outcome contrary to the intention of the legislator. In the present case, the Court found that the tax office was entitled to issue the 100a Assessment, since the decision to do so falls within the discretionary power of tax offices. However, the Court recalls that a discretionary decision must comply with the criteria of fairness and expediency. According to the criteria of fairness, a discretionary decision must, among other things, be appropriate to the concrete situation of the taxpayer. In the case at hand, the Court found that the tax office adopted a completely passive attitude after the issuance of the 100a Assessment, despite having received additional information to the contrary. Due to this passive behaviour (which included not informing the taxpayer that his email was not tantamount to a formal appeal but that a proper appeal against the tax assessment should be filed), the taxpayer lost any possibility to rectify the error, which led to a situation where he faced a tax burden that turned out to be excessive. The Court concluded that the forgiveness is justified on the basis that the passive attitude of the tax office after the issuance of the 100a Assessment was not appropriate to the taxpayer's situation and led to excessive taxation that was contrary to the intention of the legislator.
This case serves as an important reminder that, not only is the threshold for granting a tax forgiveness under §131 AO very high, resulting in only few judgements being passed in its favour, but also that any communication with the tax authorities should be carefully drafted and labelled, so as to ensure that proper appeals have been lodged in due course.