By a decision of November 29th 2018, the Luxembourg Higher Administrative Court (Cour administrative) referred three questions to the European Court of Justice of ("ECJ") for a preliminary ruling concerning the former tax consolidation regime applicable in Luxembourg until 2015 and which provided for a vertical fiscal unity (between the Luxembourg parent company and its direct or indirect Luxembourg subsidiaries). The specific article of the Luxembourg Income Tax Law (“LIR”) was amended in the course of the year 2015, in order to also provide for a horizontal fiscal unity (between sister companies of the same group whose common parent company is non-resident). This change took place to comply with a judgment of the ECJ dated June 12th 2014, where the ECJ held that the Dutch tax provisions prohibiting horizontal tax consolidations constituted an unjustified discrimination under European Union law.
Pursuant to this judgment, the Luxembourg subsidiaries of a French parent company submitted in December 2014 an application to be granted the horizontal tax consolidation regime already for the fiscal years 2013 and 2014. This request was refused by the Luxembourg tax authorities on the grounds that the former fiscal unity regime, still in force at that time, did not provide for this possibility. While the Lower Administrative Court (Tribunal administratif) ruled in favour of the applicant with regard to the year 2014, it refused to grant the benefit of the fiscal unity for the year 2013 on the grounds that the request had not been filed prior to the year end of the tax year in question, which is one of the formal requirements of the fiscal unity regime. In the context of the appeal of this decision, the Higher Administrative Court considered it necessary to seek a preliminary ruling from the ECJ on the following three questions:
The first question concerns the conformity of the former fiscal unity regime with EU law. After highlighting the differences between the Luxembourg provisions and the Dutch ones, which were invalidated in 2014 by the ECJ, the administrative judges doubt that the Luxembourg regime should suffer the same fate.
The second question concerns whether the condition, set out in the new fiscal unity regime and which prohibits a company to be simultaneously part of more than one fiscal unity, could be considered as contrary to EU law.
Finally, the third question concerns whether the condition requiring that the request for a fiscal unity be submitted no later than the end of the tax year for which the fiscal unity regime is requested could be considered as contrary to the freedom of establishment.
Depending on the answers provided by the ECJ, the consequences could be considerable as certain taxpayers may have the right to request the retroactive application of the fiscal unity regime for a significant number of tax years.