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ECJ Rules On NWT Reserve Legislation


The European Court of Justice (ECJ) rendered a decision on the Luxembourg legislation dealing with Net Wealth Tax (NWT) Reserves. The ECJ considered that the current Luxembourg legislation was not in line with EU Law, and therefore should be amended. Taxand Luxembourg explains the case which led to this ruling.

Paragraph 8a of the NWT Law states that companies based in Luxembourg can obtain a reduction in NWT if they allocate an amount which is equal to 5x the requested reduction, to a NWT reserve. This reserve must then be kept for a period of at least 5 tax years.

The ECJ ruling was based on a case where LuxCo, a company in Luxembourg, allocated funds to a NWT reserve, in order to benefit from NWT reduction. In 2006, LuxCo then transferred its operations to Italy, where they later merged with an Italian company. The new merged company kept the NWT reserve on its accounts for 5 years, as required by the NWT law.

The Luxembourg tax authorities taxed the company's NWT reserve because the LuxCo had transferred its operations to Italy within the 5 year time period and was therefore no longer based in Luxembourg. The Luxembourg Tribunal decided that the NWT reduction was conditional on Luxco being in Luxembourg for the 5 year period, and moving the company meant breaking the contract. LuxCo argued that the taxation of its NWT Reserve, owing to its migration, was against the principle of freedom of movement within the EU.

The case was then brought to the ECJ, who ruled in favour of LuxCo, stating that the Luxembourg Tribunal's findings were not in line with EU law.

Discover more: Luxembourg NWT reserve legislation is not in line with EU law


Taxand's Take

The ECJ decision is advantageous for multinationals, as it makes clear that the 5 year rule in NWT Reserves no longer applies, when a company migrates. This is good for all corporations seeking a NWT reduction as it doesn't prohibit them from being mobile.

Your Taxand contact for further queries:
Keith O'Donnell
T. +352 26 940 257

Taxand's Take Author