In a judgment dated 5 February 2026, the District Court of Luxembourg (No. TAL-2023-09471) has confirmed a EUR 725,000 administrative fine imposed by the Luxembourg Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA) (“AED”) on a company that failed to declare a change in the use of its properties. The judgment delivers clear and important guidance on the scope of Article 77, paragraph 3 of the Luxembourg VAT Law (“VAT Law”).
Background
Following a VAT audit, the AED identified multiple breaches: the company had failed to declare the required input tax adjustments and provisional or definitive non-deductions, had issued invoices lacking mandatory particulars, and had omitted to declare VAT due on invoiced supplies. The total undeclared or unduly deducted VAT amounted to EUR 4,832,747.98.
The company did not dispute the materiality of these findings but denied any fraudulent intent, attributing the failures to a dispute with its external accounting service provider. That provider had ceased all services and exercised a right of retention over the company's files, which, the company argued, had prevented it from identifying that the required declarations had not been made. The company was subsequently declared bankrupt, and proceedings were continued by its court-appointed curator.
Key Legal Conclusions
No referral to the Constitutional Court
The company argued that Article 77 of the VAT Law was unconstitutional on the basis that paragraphs 1 and 3 sanction the same breaches but with radically different penalties - a flat fine of EUR 250 to EUR 10,000 under paragraph 1, compared with 10% to 50% of the evaded VAT under paragraph 3.
The Court rejected this argument. It held that, whilst both paragraphs target the same statutory provisions, it is clear from a comparative reading that paragraph 1 is designed to punish purely formal breaches without any negative consequence for the Treasury, whereas paragraph 3 applies where the breach has had the effect of evading VAT or obtaining an irregular refund. It follows that the AED cannot arbitrarily opt for the more severe sanctions of paragraph 3; it must first establish that the breach actually had the effect of evading VAT or obtaining an undue refund. The constitutional challenge was accordingly dismissed as being without foundation.
Fraudulent intent is irrelevant
The Court examined the legislative history of Article 77(3) in detail. It noted that the Chamber of Commerce (Chambre de commerce) had, during the parliamentary process, identified the difficulty of distinguishing between paragraphs 1 and 3 in cases where the breach had the "result" - rather than the "purpose" - of evading tax, and had expressly requested the deletion of the words "or as a result" ("ou pour résultat") from paragraph 3, so as to confine the heavier sanctions to intentional conduct. The Council of State (Conseil d'Etat) endorsed that recommendation. The legislature, however, chose not to follow either recommendation and retained the original wording. The Court concluded that a taxable person is accordingly liable to the fine under Article 77(3) where a breach of the relevant provisions has had the effect of evading VAT or obtaining an irregular refund, even where that effect was not intended by the taxable person.
Article 77(3) thus operates on a strict liability basis: the decisive criterion is the objective consequence of the breach, not the subjective intention of the taxable person. The company's arguments regarding the absence of fraudulent intent were therefore held to be without relevance. This finding is consistent with the approach adopted by the Court of Appeal (Cour d'appel) in a separate case (judgment of 25 February 2026, No. CAL-2023-00948), in which the Court similarly confirmed that the legislature had deliberately retained the words "or as a result" in Article 77(3) of the VAT Law, thereby enabling the imposition of the proportional fine irrespective of any fraudulent intent on the part of the taxable person.
Liability cannot be deflected to third-party advisers
Equally important for businesses and their advisers: a taxable person cannot shelter behind a failure of diligence on the part of one of its representatives or agents in order to escape liability - the fault of the agent is attributed to the principal. The dispute with the external service provider therefore provided no defence.
Fine confirmed in full
The fine of EUR 725,000, representing 15% of the evaded tax of EUR 4,832,747.98, was found to be consistent with the lower end of the 10–50% bracket prescribed by Article 77(3), and the Court declined to reduce it.
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