At the end of 2023, Luxembourg's Constitutional Court ruled that part of the Net Wealth Tax (NWT) regime was unconstitutional. Normal NWT comprises a percentage (0.5% up to €500m and 0.05% thereafter) levied on a company's overall (global) net wealth. By contrast, Minimum NWT (MNWT) consists of bands, determined by reference to the company's balance sheet, which provide for fixed rates of tax. The band which is relevant to the Constitutional Court's ruling relates to companies with a balance sheet valued at between €350,000 and €2,000,000. Companies purely falling within that band would be subject to a tax of €1,605. However, where at least 90% of the balance sheet of such a company consists of aggregated fixed financial assets, transferable securities, inter-company receivables, and cash, there is a fixed rate of €4,815. This distinction will have likely impacted a large percentage of mid-sized firms based in the Duchy.
The court found that comparable companies in Luxembourg were being subjected to different fixed taxable amounts, depending on nothing more than what elements of assets made up their overall balance sheet. The court ruled first that companies, which were in reality comparable, were being treated differently. The court did not accept that any rational basis had been provided by the State, nor could one be properly inferred, to justify such discrimination. Moreover, the court held that the provision violated the principle of taxation in Luxembourg that taxpayers should be taxed by reference to their contributive capacity, which should be based on the economic reality.
As a consequence of the ruling, many companies may have already overpaid NWT.
Centralis Group, headquartered in Luxembourg, and with global offices numbering 14 in 12 countries, has followed the decision of the Constitutional Court with interest and is well placed to assist firms in the jurisdiction to assess their current NWT liability. Firms should be aware there is an opportunity, by carrying out the necessary steps, to request refunds on any previous overpayment of tax where applicable.
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