Legal background

Luxembourg's fiscal unity regime allows to offset the individual taxable results of the entities forming part of the fiscal unity.

Until 2014 included, Luxembourg law only accommodated so-called vertical fiscal unities, i.e., between an integrating Luxembourg company and one or more of its subsidiaries. As from 1 January 2015, following the CJEU’s 2014 judgment in case SCA Group Holding (joined cases C-39/13 to C-41/13), Luxembourg amended its legislation to also accommodate horizontal fiscal unities, i.e., between sister companies held by a common non-integrating parent. However, Luxembourg tax law does not cater for a combination of a vertical and a horizontal fiscal unity: it is thus not possible to include sister companies of the integrating Luxembourg company in an existing vertical fiscal unity, even if the conditions of the horizontal fiscal unity are met.

Factual background

The case concerned a multinational group with a series of Luxembourg subsidiaries all held directly or indirectly by the same French parent company. The group had initially formed a vertical fiscal unity headed by a Luxembourg company. In 2014, further to the SCA Group Holding judgment, the group filed requests to extend the existing fiscal unity to sister companies of the Luxembourg integrating company for the years 2013 and 2014. These requests were rejected. The Luxembourg courts rejected the subsequent appeal as regards 2013; for 2014, the court of first instance sided with the group. The administrative court, in appeal, referred three questions to the CJEU.

CJEU ruling

The CJEU first found, in line with the existing case law, that the pre-2015 regime was contrary to EU law insofar as it did not accommodate horizontal fiscal unities. The CJEU confirmed this created an unjustified discrimination between Luxembourg and EU (but non-Luxembourg) resident parent companies.

Secondly, which is also relevant to the current regime: the CJEU found that the strict separation between vertical and horizontal fiscal unities is contrary to EU law. Where there is a Luxembourg (integrating) parent company, it can add to the fiscal unity subsidiaries which are sisters of the existing integrated companies. On the contrary, Luxembourg law would (even now) still prevent a similar addition of sister subsidiaries (of the integrating Luxembourg company of a vertical unity) when there is a foreign (non-integrating) parent company, unless the vertical fiscal unity is first broken up. This may have an adverse impact in case a break-up of a fiscal unity occurs during the relevant 5-year minimum period.

Finally, the company had filed a request to form the fiscal unity in 2013 only at the end of 2014, i.e., after the deadline laid down in the law. The CJEU rejected the taxpayers’ argument that filing a request before the SCA Group Holding judgment was useless and considered that the requirement to file the request prior to the end of the relevant year was not contrary to the principles of equivalence and effectiveness.

Impact and next steps

The case will return to the Luxembourg administrative court, which should rule in line with the positions of the CJEU.

Because of the primacy of EU law, the current restrictions including in the Luxembourg rules which were found contrary to EU law would need to be set aside, even without a change of law. Hence, other taxpayers who are looking at ‘combining’ a horizontal and vertical fiscal unity, e.g., by including in an existing vertical fiscal unity a sister company of the integrating company, will be able to rely on the CJEU judgment, if a request to that effect is filed in time. If not filed before, the request needs to be filed before the end of this year in order to have the benefit of a combined vertical and horizontal fiscal unity for the year 2020.

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