New Luxembourg court tax law chamber will improve tax litigation process

Six months after the new law came into force, data provided by the judicial administration of the Grand Duchy of Luxembourg shows that the specialised chamber of the Administrative Court has already issued 29 judgements. Compared to the same period last year, all combined chambers, four chambers in total, issued 64 judgments in tax matters. Therefore, the new chamber dedicated to tax litigation alone has issued nearly 50% of the decisions previously rendered by all the court chambers put together.

On 20 July 20, 2023, the Luxembourg Chamber of Deputies adopted a law aimed at strengthening the staffing of the administrative justice system and delegating urgent procedures before the Administrative Court. The law primarily aims to achieve a reduction in caseload congestion within the Administrative Court and grants it the authority to determine annually the number of specialised chambers within the court and their areas of expertise. 

This law, effective from 16 September 16, 2023, notably aims to increase the number of chambers within the court from four to seven over a period of three years, as well as establishing 11 additional magistrate positions. 

The first of these new chambers to be created being the fifth chamber specialising in tax matters, as the number of cases in this field is experiencing notable growth.

The 2023 activity report of the Luxembourg direct tax administration highlighted that the number of new requests submitted to the director of the direct tax administration, as a mandatory step before initiating proceedings before the Administrative Court, has continued to increase over the past 10 years. In fact, submissions rose by 57% between 2014 and 2023. 

Indirectly, the total number of appeals brought before the Administrative Court in tax matters has also experienced an increase in recent years.

This has contributed to an increasingly prevalent phenomenon within the Administrative Court where cases remain under deliberation for many months.

This significant delay also impacts other cases, despite an administrative procedure imposing very short and extremely strict deadlines on parties to prepare their cases during the investigation of the matter before court hearings have even begun. 

It is not uncommon, for instance, for a case to be investigated within a total timeframe of five months. This is because parties are issued a deadline to submit legal proceedings. The party defending the issue has three months, with a subsequent deadline of one month for the party bringing the case the court before a further one month for the defending party to submit a response – or five months in total. 

However, recent delays have seen cases wait a year to be addressed in court following this initial five-month period, with a judgment taking up to a further three months after the case is heard in court. It means parties are facing a delay of almost two years to obtain a first-instance judgment in direct tax matters.

Appeals against tax assessment issued by the tax administration do not suspend the obligation of the taxpayer to pay the tax claimed. Payment suspensions can be requested but are subject to specific conditions. The length of these procedural deadlines and any further delays can therefore have a detrimental impact on taxpayers, who may be required to pay sometimes colossal amounts while their appeal is pending at the Administrative Court level. 

Although it is still premature to draw conclusions, the new measure is already helping taxpayers access justice by providing reasonable processing times for cases and appeals. 

Faced with shorter deadlines, taxpayers are more likely to pursue their appeals before the court as the avoidance of lengthy procedures can help avoid unnecessarily high costs, which was no doubt a determent to taxpayers previously. Moreover, the specialisation of the fifth chamber judges in tax matters will continue to be beneficial given the escalating complexity observed in tax litigation over time. 

Co-written by Sami Ben Mahmoud of Pinsent Masons.