On 18 June 2026, Advocate General Juliane Kokott of the Court of Justice of the European Union ("CJEU") handed down a landmark Opinion in Case C-138/24, EU Commission v. Grand Duchy of Luxembourg, recommending that the CJEU dismiss the EU Commission's infringement action over Luxembourg's exclusion of securitisation entities from the interest deduction limitation rule ("IDLR") under ATAD 1 (Directive (EU) 2016/1164).
The Luxembourg interest limitation rule
Article 4 ATAD 1 limits the deductibility of a company's exceeding borrowing costs (interest expenses exceeding interest income); Luxembourg transposed this through Article 168bis LITL, introduced by the law of 21 December 2018.
Exceeding borrowing costs remain deductible up to the higher of 30% of Tax EBITDA and EUR 3 million.
Article 4(7) ATAD 1 lets Member States exclude "financial undertakings" from the IDLR, as defined by the eight categories in Article 2(5) ATAD 1 including credit institutions and investment firms, insurers and reinsurers, pension institutions, investment funds, and central counterparties and securities depositories.
Luxembourg extended this definition to securitisation entities covered by the Securitisation Regulation (Regulation (EU) 2017/2402), thereby excluding them from the IDLR under Article 168bis LITL.
The EU Commission considers that the list of financial undertakings in Article 2(5) ATAD 1 is exhaustive and that Luxembourg therefore exceeded the discretion afforded to Member States by ATAD 1. It consequently brought infringement proceedings against Luxembourg under Article 258 TFEU for incorrect transposition of ATAD 1.
A tension between the ATAD 1 wording and purpose of the exclusion of “financial undertakings”
The Advocate General accepts that the wording of Article 2(5) ATAD 1 suggests an exhaustive list of "financial undertakings". However, she considers the purpose of the Article 4(7) exemption supports a broader interpretation.
For the Advocate General, the exemption is no accident, it reflects the specific characteristics of financial undertakings and a deliberate choice by the EU legislature to grant Member States discretion in applying the IDLR. But that discretion is not unfettered, it must be exercised within the bounds of EU primary law, including the principle of equal treatment under Article 20 of the Charter of Fundamental Rights of the European Union ("Charter").
Securitisation entities, comparable financial undertakings and equal treatment
The Advocate General considers securitisation entities comparable, for the purposes of the IDLR, to the “financial undertakings” expressly listed in Article 2(5) ATAD 1. Both are predominantly financed through borrowed capital and generate income primarily from interest, making Tax EBITDA an inappropriate measure of their capacity to deduct borrowing costs.
This comparability is relevant in light of the EU principle of equal treatment, enshrined in Article 20 of the Charter, which requires comparable situations not to be treated differently unless the difference is objectively justified. In the Advocate General's view, applying the IDLR to securitisation entities while exempting comparable financial undertakings would result in unequal treatment absent such justification.
The Advocate General also points to the regulatory framework applicable to securitisation entities under the Securitisation Regulation, which imposes specific requirements relating, among other things, to due diligence, risk retention and transparency. The EU Commission argued that excluding securitisation entities from the IDLR could encourage highly leveraged structures. The Advocate General was not persuaded: those risks, she noted, are already tackled head-on at EU level through the Securitisation Regulation.
Accordingly, the Advocate General considers that Member States must respect the EU principle of equal treatment when exercising the discretion granted by ATAD 1. On this basis, Luxembourg's decision to include securitisation entities within its domestic definition of financial undertakings can be regarded as an application of ATAD 1 consistent with EU primary law, rather than as an unlawful extension of the Directive.
What is at stake for Luxembourg?
Under Article 258 TFEU, the EU Commission is asking the CJEU to declare that Luxembourg has failed to fulfil its obligations under EU law. Should the CJEU find a breach, Luxembourg would then be required to take the necessary measures to comply with the judgment and bring its legislation into line with EU law.
In practice, this means the continued application of the exclusion under Article 168bis LITL could be called into question for Luxembourg securitisation entities. Depending on the measures Luxembourg takes to comply with the judgment, the interest limitation rule could end up applying to entities that currently benefit from the exemption.
The Advocate General's Opinion is therefore an important, albeit non-binding, signal in Luxembourg's favour – but the final outcome still rests with the CJEU's forthcoming judgment.
Key takeaway
- The Advocate General recommends that the CJEU dismiss the EU Commission's action in its entirety and order the EU Commission to bear the costs pursuant to Article 138(1) of the Rules of Procedure of the Court of Justice.
- The Opinion is not binding on the CJEU, which may depart from the Advocate General's conclusions. The proceedings therefore remain pending before the Court.
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