On 25 June 2026, the Higher Administrative Court (Cour administrative) issued two decisions in cases n° 53183C and 53184C, dismissing the appeals lodged by two Luxembourg limited partnerships (sociétés en commandite simple) and confirming, on appeal, the judgments rendered by the Lower Administrative Court (Tribunal administratif) on 6 June 2025 in cases n° 49747 and 49749, which we had reported on in a previous newsletter.
Background
As a reminder, the question at stake was whether limited partnerships set up to acquire, finance, and distribute a film production were to be regarded as conducting a commercial activity within the meaning of Article 14 of the Luxembourg income tax law dated 4 December 1967 (the “LITL”), making them subject to municipal business tax. The Lower Administrative Court had ruled in favour of the tax authorities, and both taxpayers appealed the first instance decisions.
The Administrative Court’s decisions
In both cases, the Higher Administrative Court confirmed that the taxpayers met all four positive criteria of Article 14, n° 1, LITL, namely independence, profit motive, permanence, and participation in the general economic life, and accordingly upheld their liability to municipal business tax. Since neither taxpayer put forward, on appeal, any argument capable of contradicting the lower court’s findings on independence and profit motive, the Court dismissed those challenges as unsubstantiated, while noting, for completeness, that (i) the taxpayers’ corporate object (acquiring and holding rights in a commercial film) and their own correspondence with the tax authorities already evidenced a profit motive and that (ii) each partnership had acted in its own name and for its own account, bearing the risks of its activities as a whole, since its revenues depended on the film actually being produced.
The debate before the Court therefore centred on permanence and participation in the general economic life. On permanence, the Court accepted, following the taxpayers’ arguments, that neither partnership had any intention of repeating the production or distribution of another film, each having been incorporated for the sole purpose of a single film and belonging to a group that segregates assets on a per-project basis through a dedicated partnership for each film. The Court nonetheless held, by relying on German case law of the Federal Finance Court (Bundesfinanzhof) and legal doctrine, that permanence does not turn on an intention to generate income on a continuing basis, but on the repetition of the individual acts required to implement the initial decision, even where that decision itself was a one-off. On the facts, it found such repetition in the successive steps taken to give effect to the decision to produce and distribute a single film, including securing financing, entering into production and distribution agreements, obtaining bank and intra-group financing, contributing equity, incorporating a dedicated production company, and negotiating ancillary contracts, including on music rights.
The Court then examined whether this activity nonetheless remained within the boundaries of private wealth management. Notably, in case n° 53183C, the Court found that the “licence” granted to the distributor in fact amounted, upon analysis of its terms (worldwide, 25-year exclusive rights, together with the taxpayer’s own accounting treatment of the transaction as a sale), to a disposal for tax purposes of a substantial part of the taxpayer’s property rights in the film, on the basis of § 11, n° 4 of the Steueranpassungsgesetz (StAnpG) governing the attribution of income and assets by reference to economic ownership rather than legal form. In case n° 53184C, the Court reached the same conclusion, finding that a perpetual, worldwide licence granted to the distributor in substance transferred the economic ownership of essentially all of the taxpayer’s property rights in the film. In both cases, the Court also noted that the taxpayer had itself incorporated a production company, which it considered inconsistent with mere passive asset holding, and rejected the argument that the taxpayer’s activity could not exceed that of the alternative investment fund (“AIF”) whose investment strategy it implemented, noting that the valuation report submitted by the taxpayer itself described that fund’s strategy as an active investment strategy generating a “distribution business”.
On participation in the general economic life, the Court confirmed that this criterion is to be assessed at the level of the partnership itself, not at the level of the wider group to which it belongs, and that it was satisfied because the partnership had dealt with several parties active in the film industry, thereby acting on the relevant market in a manner perceptible to its subcontractors and lenders as a participant in the general exchange of goods and services.
The Court also confirmed, in both cases, that the tax authorities’ circular n° 14/4 of 9 January 2015 and the ESMA guidelines of 13 August 2013 (ESMA/2013/611) invoked by the taxpayers are not legally binding and could not, as such, be relied upon to establish the illegality of the tax assessments.
Takeaways
These decisions confirm, at the level of the Higher Administrative Court, that a dedicated special purpose vehicle (SPV) may still be found to carry out a commercial activity and thus be liable for municipal business tax, even where it is set up for a single project and structured in the form of an otherwise tax transparent partnership as part of a group-wide asset segregation policy. The Court’s reasoning remains fact-specific and turns on the cumulative assessment of all four criteria of Article 14 LITL, so the outcome continues to depend on the structure and concrete conduct of the vehicle in question, as already highlighted in our earlier newsletter on the underlying first instance judgments. They further illustrate that the drafting of a distribution or licence agreement and, importantly, its accounting treatment in the entity’s own accounts, can determine whether an arrangement is recharacterised, for tax purposes, as a disposal of substantially all rights in the underlying asset rather than as passive asset management.
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