On 2 October 2025, the Higher Administrative Court (Cour administrative) issued a ruling in case n° 51646C (the “Decision”), regarding the extent to which a former manager of a Luxembourg resident company called in guarantee may challenge the underlying tax assessments of that company. While the Court ultimately confirmed the guarantee assessment (appel en garantie) after reviewing the company’s tax assessments, the Decision is particularly significant for its interpretation of § 119 of the General Tax Law (Abgabenordnung, “AO”).
Background
The dispute involved a former manager of a Luxembourg resident private limited company (the “Company”) who was held liable under a guarantee assessment issued on 29 September 2020, requiring her to pay the Company’s tax debts.
These debts arose from tax assessments dated 20 March 2019, relating to alleged hidden profit distributions, which had been challenged through an administrative claim (reclamation administrative) filed on 18 June 2019 by the appellant in her capacity as sole manager.
On 10 August 2022, the director of the Luxembourg Tax Authorities (the “LTA”) issued a decision rejecting the claim and confirming the disputed tax assessments. This decision was rendered after the bankruptcy of the Company, declared on 8 January 2020, at which point the appellant had been divested of managerial control in favour of the court-appointed curator.
As the curator did not lodge a judicial appeal, the Lower Administrative Court (Tribunal administratif) concluded that the director’s decision had acquired res judicata effect, limiting the appellant to contesting only the lawfulness of the guarantee notice rather than the underlying tax liability.
The Higher Administrative Court, in its Decision, finally resolved the dispute, clarifying the circumstances under which a third party called in guarantee may contest underlying tax assessments despite the res judicata effect of these tax assessments vis-à-vis the company.
The decision: § 119 AO and judicial review
On appeal, the Higher Administrative Court analysed the scope of § 119 AO, which governs the procedural rights of a third party called in guarantee.
Under § 119(1) AO, a person that is held personally liable for the tax of a company may exercise the same remedies and invoke the same arguments as the principal taxpayer (i.e. the company). However, § 119(2) AO provides that if the company’s liability has been definitively established, a third party who was able to appeal the assessment – either as the company’s representative or in their own right – must accept it as binding.
The Lower Administrative Court had relied on this paragraph to bar the appellant’s challenge, reasoning that the Company could have acted against the LTA’s decision.
The Higher Administrative Court rejected this view, noting that the LTA’s decision of 10 August 2022 was issued after the bankruptcy, when the appellant was legally prevented from acting on behalf of the Company. Accordingly, she was no longer “in a position to appeal” within the meaning of §119(2) AO.
The Court emphasized that a mere administrative claim is not an effective judicial remedy. The right to appeal requires the real possibility of a judicial challenge, consistent with constitutional principles ensuring access to a court and an effective remedy (Constitutional Court, 28 May 2019, No. 00146; Higher Administrative Court, 6 March 2025, No. 51780C; art. 2 of the revised Constitution).
The Court also rejected the State’s argument that the bankruptcy had been deliberately orchestrated to avoid taxes, noting that the bankruptcy on own petition complied with statutory requirements.
Thus, the exception in § 119(2) AO could not be applied, and the appellant retained the right to contest the company’s tax assessments underlying the guarantee notice.
Significance of the judgement
This judgment clarifies that the exclusion under § 119(2) AO applies only when the third party actually had the ability to appeal the principal taxpayer’s assessment. Where no such opportunity existed, a third party may still challenge the tax liability forming the basis of the guarantee assessment.
The Court confirmed that a person called in guarantee can, in such circumstances, raise the same arguments as the principal taxpayer, including challenges to the tax classification of transactions (here, the alleged hidden profit distributions).
While the Decision confirms the lawfulness of the guarantee assessment, its primary importance lies in its clarification of § 119 AO and the rights of third parties, ensuring they are not deprived of judicial review when circumstances make contesting the underlying tax impossible.
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