On 11 February 2026, the Lower Administrative Tribunal (Tribunal administratif) ruled in favour of a taxpayer-lawyer, holding that his 100% shareholding in a UK company did not form part of the net assets (actif net investi) of his law firm, and that the dividends received therefore qualified as investment income rather than liberal profession income.
Background
The taxpayer, a business lawyer operating his own Luxembourg law firm since 2008, held the entirety of the shares in a UK company ("Company AA") since its incorporation in 2007. Company AA was managed from London, held its bank accounts exclusively with a UK bank, and carried out diversified commercial and financial activities subject to UK Corporation Tax. The law firm provided legal services to Company AA on a recurring basis, duly invoiced and recorded in its accounts. In 2017, Company AA distributed its profits to the taxpayer, who declared the dividend as investment income and claimed the 50% tax exemption under Article 115, No. 15a of the Luxembourg Income Tax Law of 4 December 1967 ("LITL"). The Direct Tax Administration (Administration des contributions directes) reclassified the dividend as liberal profession income, on the basis that the shareholding formed part of the law firm's net assets under Article 19(1) LITL, since Company AA was a client of the firm.
Legal framework and key holdings
The tribunal clarified that, for liberal professionals, the composition of net assets is not governed by Article 19 LITL, which is disapplied by the specific provision of Article 93(2) LITL. Under that provision, only assets which, by their nature, are intended to serve the exercise of the liberal profession and whose possession is in direct relation with that profession may be included. Assets serving the profession only indirectly are excluded. This constitutes a cumulative two-limb test, and liberal professionals - unlike traders - have no option to elect which assets to include.
Decision
The tribunal found that neither condition was met. Fees invoiced to Company AA represented only approximately 18% of the lawyer's total professional income, meaning the shareholding was not, by its nature, necessary to the exercise of the legal profession. Moreover, the lawyer held no management role in Company AA, had no signing authority over its bank accounts, and the shares had been financed entirely from private funds. Company AA's activities - management consultancy - were wholly unrelated to legal practice. The court also noted, relying on the case law of the German Federal Tax Court (Bundesfinanzhof), that shareholdings held by liberal professionals can only be included in their net assets in exceptional cases where the holding is not alien to the nature (wesensfremd) of the profession. The dividends were accordingly reclassified as investment income, and the case was remitted to the competent tax office.
Key takeaway
Where a lawyer holds shares in a client company, the resulting dividends will only be taxable as liberal profession income if the shareholding satisfies both limbs of the cumulative test under Article 93(2) LITL - a high threshold that is not met by the mere fact that the company is a client of the firm.
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