The use of corporate tax losses and the concept of abuse of law: The Administrative Court restores much needed legal certainty

On 30 March 2023, the Luxembourg Administrative Tribunal (Tribunal Administratif, the “Tribunal”, which is the first instance jurisdiction) held its decision in a case that concerns the use of corporate tax losses by a Luxembourg company (“LuxCo”).

LuxCo incurred its tax losses when it was a holding company and intended to use these losses, following several years of being dormant, to offset a capital gain realised upon disposal of a Luxembourg real estate property.

The Luxembourg tax authorities (“LTA”) challenged the use of the tax losses based on the abuse of law provision provided in § 6 of the Tax Adaptation Law (Steueranpassungsgesetz or “StAnpG”). The Tribunal followed the decision of the LTA and rejected the use of the tax losses.

On 25 April 2024, the Administrative Court (the “Court”) overturned the decision of the Tribunal. The Court disagreed with the Tribunal's decision that the use of tax losses carried forward from the taxpayer's previous shareholding activities to offset a capital gain realised on the sale of a Luxembourg real estate property constituted an abuse of law.

Read our in-depth analysis, put together by Tax Partner and Head of Transfer Pricing, Oliver R. Hoor, and Chief Knowledge Officer, Marie Bentley, now!