On 15 September 2021, the Lower Administrative Court issued four decisions on the lack of competence of the Luxembourg Direct Tax Authorities (hereinafter “ACD”) to supervise family asset management companies (hereinafter “SPFs”). According to the law of 11 May 2007 on the creation of SPFs (hereinafter the “SPF Law”), SPFs are exempted from corporate income tax, municipal business tax and net wealth tax. Furthermore, according to the SPF Law the competence to control SPFs lies with the Indirect Tax Authorities (hereinafter "AEDT").
The facts that led to the decisions of the Lower Administrative Court concerned two Luxembourg SPFs that held bonds issued by other Luxembourg companies. While the SPF Law allows SPFs to hold bonds and other debt securities, the parliamentary discussions surrounding the adoption of the SPF Law specify that an SPF should not grant interest-bearing loans. By analysing the assets held by the two SPFs in question, the ACD considered that the bonds held by the SPFs were in fact interest-bearing loans granted to companies. Therefore, the ACD concluded that the SPFs should not benefit from the derogatory tax regime provided for by the SPF Law and as a consequence should be subject to direct taxes and thus its supervision. The ACD required the SPFs to file income tax, municipal business tax and income tax returns under the threat of fines. Due to the refusal of the SPFs to comply with this request, the ACD imposed a fine and issued ex officio tax assessments for the years 2010 to 2016. The SPFs appealed to the Lower Administrative Court on the grounds that the ACD had no competence to supervise them and to oblige them to file tax returns.
In its decisions, the Administrative Court relied on the SPF Law, which provides for a derogatory regime and explicitly states that the authority in charge of the fiscal supervision of SPFs is the AEDT. Furthermore, the judges point out that as long as the director of the AEDT has not removed such status, a company incorporated as an SPF retains this form and benefits from the derogatory tax regime. In the case at hand, the judges referred to a letter from the Director of the AEDT from which it is clear that at the time of the debates the Director still considered the companies as SPFs. The Lower Administrative Court therefore concluded that, as the Director of AEDT had not withdrawn the SPF status, the ACD had no competence to supervise them. Due to this lack of competence, the Decision of the Director of the ACD that upheld the orders to file tax returns were annulled by the Lower Administrative Court. It remains to be seen whether the State will appeal against these decisions.