Agefi Luxembourg - décembre 2024

Décembre 2024 39 AGEFI Luxembourg Emploi / Droit ByEmilienLEBAS,Partner,HeadofInternational Tax, Tax controversy&dispute resolution leader &ValentinePLATEAU,Manager,International Tax, KPMGLuxembourg O n 20 February 2024, the Luxembourg administra- tive court of appeal (“the Administrative Court” or “Court”) (Cour adminis- trative, 20 février 2024, n°49388C) rendered a decision in which it took position on a taxpayer’s al- leged economic ownership of some trademarks. Thisdecisionconcerns the appeal of joint cases issued during 2023 (1) whichwe have already hadtheopportunitytoanalyzeaspartofourtaxcon- troversy series (2) . While this appeal decision largely aligns with the position of the Luxembourg admin- istrative tribunal (the “ AdministrativeTribunal ”or “ Tribunal ”) – ultimately confirming the Luxem- bourgtaxauthorities’stancetodenytheapplicability oftheIPexemption–itnonethelessdispelssomeun- certainties raised by the initial decision, which we will highlight in this article. Case summary The complainants are two Luxembourg companies (“ Company1 ”orthe“ Licensee ”,and“ Company2 ”) whichhave beenmembers of the samefiscal unity in accordancewitharticle164bisof theLuxembourg in- cometaxlaw(“ LITL ”)since27April2015–Company 2 being the integratingparent companyof Company 1. In December 2015, Company 1 entered into an agreement with an affiliated US company (the “ Li- censor ”)andwasgrantedtherighttousesometrade- marks. As per the agreement, the Licensee was also allowed to sub-license the trademarks to affiliated companies, also resident in the EuropeanUnion. In the case under review, in June 2018, the tax office challengedCompany 1’s tax return for the fiscal year 2016 and denied its eligibility to the 80% intellectual propertyexemptionembeddedintheoldarticle50bis LITLon the trademarks agreement. The case escalated and, following two unsuccessful administrativeclaimswiththeDirectoroftheLuxem- bourg direct tax authorities (“ ACD ”), each com- plainant lodged an appeal with the Administrative Tribunal (3) . The administrative judge of first instance howeverruledinfavoroftheDirectorandconsidered that, given that Company 1 couldnot be regarded as the economic owner of the trademarks, Company 1 couldnot benefit fromthe exemptionpertaining to it. This ultimately led the claimants to lodge an appeal with theAdministrativeCourt on 5 September 2023. Context of theDecision The overall alignment of theAdministrativeCourt to the Tribunal’s stance was reasonably expected given the detailed and convincing arguments the latter de- velopedtoupholditsposition.Thatsaid,wewerestill waiting for the final decision to be issued as the Tri- bunal took quite a restrictive approach regarding the use of § 11 Steuranpassungsgesetz (“ StAnpG ”) and theprincipleofeconomicappreciation( principedel’ap- préciationéconomiquedesopérations )whichthetaxpayer attempted to relyon.Notably, one argument to reject the claim that Company 1 should be regarded as the economic owner of the trademarks was to consider that they should not be allowed to invoke the prin- ciple of economic appreciation of the transactions to contradicttheirownunequivocaldocuments.Inthat regard,theTribunalstated: “Theprinciple,derivedfrom paragraph 11 StAnpG, aims solely to enable , in tax matters, the tax authorities and the administrative judge to seek andanalyze, beyond the legal appearance, the economic reality covered by the legal forms chosen by the parties to carry out a specific transaction, with a view to verifying whether the latter corresponds to the real inten- tion of the parties.” (4) Inour initial article analyzing theTribunal’s decision, wewonderedwhether the abovewording shouldbe interpreted as suggesting that the principle of eco- nomic appreciation of the transactions may from nowononlybeusedbytheACDagainstaposition takenby a taxpayer. To our knowledge, thiswas the firsttimeanadministrativejurisdictionhadexpressed suchaone-sidedviewregardingtheapplicationof§11 StAnpGand the principle of economic appreciation. To support their position, the administrative judges of first instance mentioned another decision they rendered in 2016 (5) . In this case, the above principle wasreferredtoasfollows: “Intaxmattersthecourtcan- not stop at the legal forms chosen by the parties to carry outagiventransaction,butiscalledupon,beyondthelegal appearance,toinvestigateandanalyzetheeconomicreality covered by the said legal forms. In fact, it is a principle of tax law that facts and legal acts must be interpreted and assessed according to economic criteria. For the rest, the legal qualifications put forward by the parties are only ac- cepted by the tax judge insofar as they correspond to the real intention of the parties.” (6) However, wewere of the view that the aboveword- ing from the 2016 decision should not formally pre- vent a taxpayer from invoking the predominance of the economic reality of a transactionover its legal ap- pearance(albeitnotaneasytaskinpracticeasinmost casesthetaxpayerwouldstillbeassumedtohavecon- sented to the legal forms it opted for). Thatbeingsaid,inthecaseunderreview,theAdmin- istrative Court does not adopt the same wording as the Tribunal with regard to the applicability of the principle of economic appreciation, even though it also concludes that the taxpayer could not benefit fromthe exemptionof article 50bis LITL. Decision of theAdministrativeCourt For the most part, the Administrative Court fol- lowed the Administrative Tribunal’s reasoning. In short, to determine whether Company 1 might be eligible to the IP exemption, the Court principally reviewed the ownership of the trademarks in question. As a preliminary remark, the Court emphasized that, in principle, the IP exemptionshouldbesolelygrantedto thelegalowneroftheIPrightsandas such categorically rejected the claimant’s argument according to which a mere beneficiary of a li- cense agreement could also claimthe benefit of the IP ex- emption. However, in cases where, basedon the facts and circumstances, another person acts in amanner that effectively deprives the legal owner of its ac- tual ability to use or dispose of the asset, that other person should be con- sidered the economic owner. As in this case the Licensor had retained the legal ownership of the trademarks (an aspect that was not challenged by the appellant), the Court proceeded to analyzewhetherCompany1couldnonethelessbere- garded as the economic owner of them. In this respect, aligned with the Tribunal, the Court recalled the so-calledprincipleof economic apprecia- tion of transactions according to which it should not be bound by the qualifications chosen by the parties to carry out a given transaction. Instead, it should go beyond legal forms andanalyze the economic reality and the circumstances surrounding this transaction. TheAdministrativeCourtemphasized,however,that tobeapplicable,suchaprinciplerequirestheexistence of uncertainties regarding the identity of the pre- sumed owner. In other words, a taxpayer cannot in- voke, based on this principle, an alleged economic reality,whichiscontradictedbythelegalformsresult- ingfromitsownclearandunambiguousdocuments, andunsupportedby any other evidence. -Inthecaseunderreview,theCourtobservedthatthe license agreement (which should in principle reflect theintentionoftheparties)expresslyprovidesthatthe Licensor should remain the owner of the rights. Al- though it acknowledged that certain clausesmay in- deed look ambiguous, such as the relatively long durationof the contract (25-year term) or the renewal clausewithoutadditionalpayment,itultimatelyruled that those elements alone should not be considered sufficient to justify a requalificationof the license and sub-license agreement as a transfer of the economic ownership. -Moreover,aspreviouslypointedoutbytheAdmin- istrativeTribunal,theagreementsdonotgranttheLi- censee anunconditional right touse or dispose of the trademarkssuchthattheLicensorwouldlosecontrol over them. Instead, prior approval of the Licensor is expresslyrequired.Inthatregard,theCourtruledthat itshouldnotbepresumedfromthefactthatsomesub- license agreements were concluded without the Li- censor’s prior approval that the latter in fact intended to transfer ownershipof the trademarks. -Finally,theCourtnotedthattheappellantswereun- able to provide additional evidence to demonstrate the alleged gap between the legal appearance of the license transactions and the economic reality. For this purpose, the Court clarified that it would have ex- pectedtheappellantstoexplainthespecificoperation they intended to carry out andwhy the legal qualifi- cation ultimately applied did not in the end reflect their true intent (7) – witch they failed to do. Conse- quently,theAdministrativeCourtrejectedtheappeal lodgedby the taxpayers. Withregardtotheapplicabilityoftheprincipleofeco- nomic appreciationof the transactions, and further to the above analysis, the Administrative Court stated: “(…)thetaxpayercannotrelyonthisprincipletojustifyan allegedeconomicrealitybasedexclusivelyonitsownallega- tions, but which are contradicted by the legal forms chosen andarenotsupportedbyanyotherelement.Itisinthissense thatthefirstjudgesrecalledthata taxpayercannotbeal- lowed to use the principle of economic appreciation to contradict its own unequivocal evidence .” (8) Thiswording is fromour perspective less strict than the one used by the Tribunal. Based on the above, it seems clear that a taxpayer cannot benefit from the applicationoftheprincipleofeconomicappreciation incaseswhere the legal documents areunequivocal. On the other hand, it suggests that taxpayers could still use the above-mentioned principle in cases where the legal appearance given to a specific trans- action is not clear from the documentation – as the AdministrativeCourt didnot explicitly rule that this possibility should be exclusively reserved to the tax authorities and judges. To conclude, although the decision of the Adminis- trativeCourt doesnot differ greatly fromtheposition taken by theAdministrative Tribunal, this case is im- portant because it highlights that theprincipleof eco- nomicappreciationcouldalsobeatoolinfavorofthe taxpayer, at least in some specific situations, contrary towhat hadbeen ruledby theAdministrative Tribu- nal in thefirst instance judgement, and shouldnot be exclusivelyreservedtothetaxauthoritiesandjudges. Notwithstandingtheabove,documentationsupport- ingtransactionsiskeyasitwillalwaysbetheprimary source that the tax authorities review to assess the el- igibility of a given tax treatment. Finally, the circum- stances of the transactions, and the way the parties implementtheexistingprovisionsofthedocumenta- tion,will alsobe key indetermining the economic re- ality andwhat tax regime shouldbe applied. 1)Tribunaladministratif,26 juillet2023,n°45706etn°46555. 2)E.LebasandV.Plateau,“Taxcontroversyseries–Administrative court judgment on economic appreciation”,AGEFI Luxembourg, October2023–Page8. 3) As a result of the fiscal unity, Company 1 (the integrated com- pany)hasaniltaxablebasisforcorporateincometaxandmunicipal businesstaxpurposes.Consequently,theclaimitfiledwasdeemed inadmissiblebytheDirectorandsubsequentlybytheAdministra- tiveTribunalforlackofstanding( intérêtàagir ). 4) Translation of the French text by the authors: “ le principe, dégagé duparagraphe11StAnpG,viseuniquementàpermettre,enmatièrefiscale, aux autorités fiscales et au juge administratif de rechercher et d’analyser, au-delà de l’apparence juridique, la réalité économique recouverte par les formesjuridiqueschoisiesparlespartiespourréaliseruneopérationdéter- minée, en vue de vérifier si ces dernières correspondent à l’intention réelle desparties .” 5)Tribunaladministratif,3février2016,n°35671 6)TranslationoftheFrenchtextbytheauthors: “enmatièrefiscalela juridiction saisie ne saurait s’arrêter aux seules formes juridiques choisies parlespartiespourréaliseruneopérationdéterminée,maiselleestappelée, au-delà de l’apparence juridique, de rechercher et d’analyser la réalité éco- nomiquerecouverteparlesditesformesjuridiques.Eneffet,ilestdeprincipe en droit fiscal que les faits et les actes juridiques doivent être interprétés et appréciésd’aprèsdescritèreséconomiques.Pourlesurplus,lesqualifications juridiques avancées par les parties ne sont retenues par le juge de l’impôt quedans lamesureoùellescorrespondentà l’intentionréelledesparties .” 7)«Telquecelaaétérelevéàjustetitreparlapartieétatique,lecontribuable qui entend prospérer dans sa démarche de voir requalifier une apparence qu’ilalui-mêmecrééeparlesformesjuridiquesqu’ilachoisies,etceàtravers le recours au principe d’appréciation économique, doit fournir la preuve d’une disparité entre la forme juridique et la réalité économique. En l’oc- currence,ildoitétablirqueleoulesauteur(s)del’opérationàrequalifieren- tendaient réaliser une certaine opération d’un point de vue économique, qu’ilsl’onteffectivementréaliséeetquelaqualificationjuridiqueretenuene reflètefinalementpassa/leurvolonté.» 8)« […]lecontribuablenesauraitseprévaloir,ens’appuyantsurceprin- cipe, d’une prétendue réalité économique qui repose exclusivement sur ses propresallégations,maisquisontcontreditesparlesformesjuridiqueschoi- siesetquinesontsoutenuesparaucunautreélément.C’estencesensque lespremiersjugesontrappeléqu’ilnesauraitêtrepermisàuncontribuable deseservirduprincipedelaréalitééconomiquepourcontrediresespropres piècesnonéquivoques.» Administrative court of appeal decision on the economic appreciation concept La fortune des milliardaires a augmenté de 17% en 2024 L a richesse détenue par lesmilliardaires a aug- menté d'environ 17% au cours de l'année écoulée, a déclaré la banque suisse UBS le 5 décembre, notant que les gains enregistrés par les super riches aux États- Unis ont plus que compensé le déclin enChine. Le rapport 'UBSBillionaireAmbi- tions Report for 2024' indique que lenombretotaldemilliardairesest passé de 2.544 en 2023 à 2.682 en 2024,etqueleurfortuneestpassée de12.000à14.000milliardsdedol- lars (de 11.400 à 13.300 milliards d'euros). Ils étaient 1.757 milliar- dairesen2015,selonlerapport,cu- mulantunefortunetotalede6.300 milliards de dollars. Selon la Banque mondiale, la po- pulation mondiale était d'un peu plusde8milliardsd'habitantsl'an- néedernièreetleproduitintérieur brut(PIB)mondials'élevaitàenvi- ron 105.400 milliards de dollars, soulignantdefaitlarépartitiondes richesses dans les mains d'une in- fimepartiedel'humanité.Silaplu- partdesnouveauxmilliardairesde l'année sont des 'self-made-man' (autodidactes), le rapport de la banque en 2023 montrait que les nouveauxmilliardairesacquièrent plus de richesses par héritage que par les affaires. Le rapport de 2024, basé sur une enquêtemenéeauprèsdesmilliar- daires entre juin et septembre et surdesdonnéesrelativesaupatri- moine des super riches, montre que le risque de conflits géopoli- tiques et l'inflationsont leursprin- cipales préoccupations. L'enquête montre également que l'Amérique duNord étaitmajori- tairement considérée comme of- frantlesmeilleursrendementssur investissement pour 2025. Aux États-Unis, le nombre de milliar- daires est passé de 751 à 835, avec en tête les magnats de l'industrie et de la technologie, dont la for- tune totale est passée de 4,6 à 5,8 milliards de dollars. En Chine, le nombre de milliar- daires est passé de 520 à 427 et leur fortune a diminué de 1.800 à 1.400 milliards de dollars. En 2021,laChinecontinentalecomp- tait 626 milliardaires, dont la for- tune totale dépassait les 2.500 milliardsdedollars, selon lespré- cédents chiffres d'UBS. Benjamin Cavalli, responsable des clients stratégiques chezUBS globalwealthmanagement, adé- claré que ce déclin reflétait les pertes sur les marchés immobi- liers et la baisse de la valeur des entreprises détenues par certains desmilliardairesChinoisdansun contexte de perspectives écono- miques incertaines. En Inde, le nombre de milliardaires a aug- mentédeplusd'un cinquième au cours de l'année écoulée, pour at- teindre 185, et leur fortune a pro- gressé de plus de 40%, pour atteindreprès de 906milliards de dollars, toujours selon UBS. En Europe occidentale, la Suisse a dépassélaGrande-Bretagne,quia vusonnombredemilliardairesre- culer, pour devenir le deuxième pays comptant le plus de milliar- daires après l'Allemagne, aug- mentant son total de 10 à 85 milliardaires.EnFrance,lenombre demilliardaires a augmenté de 12 pour atteindreun total de 46, pos- sédant la richesse cumulée la plus élevé d'Europe. Rapport : https://lc.cx/Uh5ykS Source : Reuters ©Reuters