On 22 January 2020, the Luxembourg lower administrative court (Tribunal administratif) handed down a judgment on the deductibility of French CSG/CRDS contributions (Contribution Sociale Généralisée/Contribution pour le Remboursement de la Dette Sociale) as special expenses related to employment income for Luxembourg income tax purposes.
In the case at hand, an individual resident in France was affiliated to the French social security and partly taxable on his employment income in Luxembourg, as his employment contract foresaw that part of his activity would be carried out in Luxembourg. The Luxembourg tax authorities initially denied the right to deduct the CSG/CRDS as special expenses on his employment income. The lower administrative court however concluded that the CSG/CRDS contributions should qualify as social security contribution within the meaning of Article 110 paragraph 1 of the Luxembourg income tax law, as their purpose is to finance the French social security, in line with the position taken by the European Court of Justice in its Ministre de l'Économie et des Finances v Gérard de Ruyter (C-623/13) decision. Those conclusions were reached despite the fact that the French legislator considers those contributions as a tax. Interestingly, the judgement did not make a difference between the deductible and non-deductible parts of the CSG/CRDS contributions in France and considered the complete amount of the CSG/CRDS contributions related to the Luxembourg employment income as tax deductible. Indeed, with regards to social security contributions in Luxembourg, only part of the contribution is tax deductible, the remaining part (contribution dépendance) being non-deductible.
While the case provides helpful clarifications, it did not address the other key point related to the CSG/CRDS contributions, which is their treatment in Luxembourg pursuant to the new tax treaty entered into with France, which clearly includes the CSG/CRDS contributions as some of the taxes falling within the scope of the double tax treaty.