Agefi Luxembourg - avril 2026

Avril 2026 41 AGEFI Luxembourg Droit & Travail O n 12March 2026, the Luxembourg administrativeCourt ofAppeal (the “AdministrativeCourt” or the “Court”) rendered two appeal decisions concerningwhether a taxpayer’sUSbranch constituted a permanent establishment (“PE”) for FYs 2015-2018 under the Luxembourg-UnitedStates dou- ble tax treaty (the “Luxembourg- USDTT”) ( Cour administrative, 12Mars 2026, n° 53207C ; Cour administrative, 12Mars 2026, n° 53208C ). Given the similarity of the facts and the conclusions reachedby theCourt, this arti- clewill focus solely ondecision n° 53207C. ThetaxpayersetupaUSbranchinearly2014toman- ageandadminister intra-groupfinancial assets. It en- tered into a services agreement with its US parent under which “personnel” (i.e. a single branch man- ager)wassecondedand“adequateofficespace”was provided at the parent’sNewYorkpremises. In addition, an internal management arrangement contemplated that the Luxembourg head office wouldassume, for a fee, a substantial share of theUS branch’s functions (including general management andadvisorysupport,financeandaccounting)tosup- port day-to-dayoperations and compliance. The tax- payer later signed aGlobal ServicesAgreement with the parent formanagement and technical services. This led the tax office to consider that most of theUS branch’s intendedactivitieswere contractually trans- ferred to the taxpayer, who in turn delegated part to itsUSparent.Asaresult,inJanuary2020,thetaxoffice decidedtoinitiateapost-assessmentreview(“ contrôle ultérieur ”)under§100a(2)oftheGeneralTaxLaw( Ab- gabenordnung ,“ AO ”),requestingdetailedinformation on theUSbranchand intra-groupfinancing. Follow- ing exchanges with the taxpayer that clarified key points, the tax authorities ultimatelydecided todevi- ate from the position taken in the taxpayer’s returns. Theauthorities refused to recognize theUSbranchas a PE under Article 5 of the Luxembourg-US DTT (1) , notably because: - They considered that key functions and decision-makingwereeffectivelyhandledbytheLux- embourgheadoffice and/or theUSparent. - The branch lacked autonomous on-the-ground ac- tivity and authority. Inshort,thetreaty’stwokeycriteria–(i)fixedplaceof business and (ii) business actuallycarriedon through that place –were at the heart of the dispute. Asaresult,therelatedincomeandassetsweretreated as fully taxable inLuxembourg. InFebruary2021,thetaxpayerfiledanadministrative claim.TheDirectorofthedirecttaxauthoritiesrejected it, concluding that therewas noUS PE. The taxpayer then brought the case before theAdministrative Tri- bunal (the “ Administrative Tribunal ” or “ Tri- bunal ”), which dismissed the case on 6 June 2025 ( Tribunal administratif, 6 juin 2025, n°47426 ) for the same reasons. - On one hand, the Tribunal considered that internal documents alonewere not sufficient to prove the ex- istence of a fixedplace of business in theUS. The Tri- bunal also found that the photos of the office space (takenaftertheclosureofthebranch)lackedprobative value, as they failed to establish a clear link between the premises and either the taxpayer or its branch. - On the other hand, the Tribunal considered that the taxpayer hadnot providedsufficient evidenceof any effective activity being carried out in the US through the branchduring the relevant years. Dissatisfiedwiththeoutcome,thetaxpayerultimately lodged an appealwith theAdministrativeCourt. Decision of theCourt The Administrative Court framed the case around the two above-mentioned criteria: first, whether a fixedplaceof business existed; second, if so,whether it carried on any activity. The case therefore mainly revolvedaround the interpretationofArticle5of the Luxembourg-USDTT and § 16 (5) of the TaxAdap- tation Law ( Steueranpassungsgesetz , “ StAnpG ”) which define the PE concept. It isworth noting that, in the event of divergence, the judges gave prece- dence to the former over the latter, in accordance with the principle of prevalence of international law over domestic law. The judges also disregarded ar- guments based solely on the provisions of the StAnpG. Because the taxpayer sought a treaty ex- emption, it bore theburdenof proof underArticle59 of the lawof 21 June 1999 (2) . With respect to the fixed place of business On the first criteria – the existence of a fixed place of business – the Court sided with the taxpayer (dis- agreeing with the Tribunal’s stricter view). Leaning on theOECDCommentary, it confirmed that aplace ofbusinesscanexistwithinanotherenterprise’sprem- ises (the US parent in the case under review) if space is at the taxpayer’s disposalwith somedegree of per- manence; ownership or a direct lease isn’t required. For intra-group financing and asset-holding, the Courtalsoacknowledgedthatlimitedphysicalmeans could suffice: a contractually provided, equipped of- fice may satisfy the “place of business” test – subject to proving that business was actually carried on through that place. In the case under review, the judges observed that: -theservicesagreementwiththeUSparentprovided an “adequate office space” in New York and sec- ondedpersonnel who remained employed andpaid bytheUSparent(laterrechargedonacost-plusbasis) butworkedunder the branch’s supervision. - the branch addresswas regularlymentioned on in- ternaldocumentsandannualaccounts,andtheCourt declined to discard ex-post photos and office plans merely because they were prepared for the dispute, notingno “manifest inconsistency” between them. - finally, a bank letter misdated “2013” was credibly presented as a 2014 confirmation shortly after the bank account was opened and was accepted as evi- dence that aUS bank account existed for the branch. By contrast, the EIN ( Employer Identification Number) application which the appellant also put forward in itsdefense carried littleweight because it didn’tmen- tionthebranch,andtheabsenceofUStaxassessments was not probative given there was no US filing obli- gation. Nevertheless, as noted above, several other documentssubmittedbythetaxpayerweresufficient inthiscasetoallowtheCourttoconcludethattheap- pellant had a fixed place of business in the US during the relevant fiscal years. With respect to the carrying on of business On the second condition however –whether the businesswas actually carried on through that place – theCourt agreedwith theTri- bunal and the tax authorities: form did notmatch substance. Notably, the judges observed that: -asignificantshareofday-to-dayand supportwork(management,admin- istration, accounting, bank liaison, cash management, reporting) had been shifted to the Luxembourg head office under the internal man- agementarrangement.Theyhighlighted thattherewasa “contradiction” betweentheestablish- mentoftheUSbranchtomanageassetsallocatedtoit (withtheUSparentprovidingresources)andthesub- sequentcommitmentfortheLuxembourgheadoffice toprovidemostoftheservicesrequiredforthatman- agement. - Moreover, the transfer pricing study, which docu- mented the services to be rendered by the Luxem- bourgheadofficetotheUSbranch,indicatedthatthe latter was expected to assume “ market, currency and debtordefaultrisks,andtoperformthebulkofcashmanage- ment aswell as the financial and tax functions related to its activity ”while, by contrast, the head office was to be responsible “for the execution of the group’s strategy, governance, global financial and tax functions, and rela- tionships with third parties, as well as being primarily re- sponsible for the negotiation, conclusion and execution of the financial instruments allocated to the US branch, em- ployment policy, legal and financial regulatory matters, and information systems relating to the management of the company”. The transferpricingstudy furtherpor- trayed the branchmanager as largely “on call.” - The operational trail in the US was limited: there were no emails or records of regular branch-level de- cision-making; board minutes and “US Branch Up- date” decks reflected limited, mostly passive activity tied to allocations decided in Luxembourg; letters signedbybranchmanagersimplementedheadquar- ters’ instructions. - Banking reality reinforced the point: the Court no- tablyobservedthattheheadofficeopenedthebranch account and that statements were sent to Luxem- bourg. It further noted that there was no evidence of US-originated instructions or exercised signatory powers.Assetsatthebranchwerefewandoftentem- porary, with long stretches showing no significant loans or transactions. Mere allocations/reallocations, receiptsofinterest,andcash-poolingbalancesdidnot addup to ongoing assetmanagement onUS soil. The Court summarized that the overall record sug- gested a formal appearance (“ apparence formelle ”) of US-branchactivitywithoutrealsubstanceand,inpar- ticular, no demonstrated decision-making auton- omy (3) .TheCourtconcludedthatthe“activitythrough thefixedplace”conditionwasnotmet.Hence,theUS branchshouldnotberegardedasconstitutingaPE.It follows that the appeal was dismissed and the Tri- bunal’sjudgmentconfirmed.TheCourtacceptedthat afixedplaceexisted,thusdisagreeingwiththejudges of first instance on that point, but held that the tax- payer didnot prove businesswas actually carried on through that place. Takeaways As discussed in our previous articles, the recognition of a foreignPE is a recurring theme (4) – and it remains relentlessly fact-driven. Consistent with other recent piecesofcaselawonthematter,thiscaseconfirmsthat jurisdictionsfocusona“ faisceaud’indices” (abundleof economic indicators) anchored in economic reality rather than the formal set-up. Labels, internal slides and formal structures help only insofar as they align withhowthe business actually operates day-to-day. The two conditions under Article 5 of the Luxem- bourg-US DTT are distinct: there must be a fixed place of business and the enterprise must carry on its business through that place. They do not neces- sarily rise or fall together, however. While each cri- terion can be decisive on its own (if there is no fixed place of business, the second condition will not be examined), the second is often the harder one: activ- ity, decision-making authority, and an on-the- ground cadence must be evidenced in the jurisdictionwhere the PE is claimed to sit. Regarding the fixedplace criterion, it remains some- thing of a grey area as the Tribunal and theAdmin- istrative Court reached opposite conclusions in this respect (although the latter’s position should logi- cally prevail), showing that reasonable decision- makers can differ on when space is “at disposal” with sufficient permanence. Based on the case at hand, we understand that a fixed place can be proven without a lease in the taxpayer’s name, as longas thereare consistent, credible intra-groupma- terials (e.g. services agreement grantingofficeaccess; recurring address across the file). Finally, it is important to note that where the record readslikelocalactivityonpaperbutlacksevidenceof decision-makingautonomyontheground,PErecog- nitionfails.TheCourt’sformalappearance(“ apparence formelle ”) observation is a helpful shorthand for how close the scrutiny can be. It should also be noted that support functions can be partially performed by re- lated parties without negating the PE, as long as the decision-making and control remain at local level. The case alsomade it clear that PEpositions should line up with transfer pricing analyses, governance documents and banking mandates. If materials portray local personnel as “on-call” – i.e. available as needed – while authority and execution sit at headoffice, theArticle 5 assessmentwill tend to fol- low that reality. Emilien LEBAS, Partner, Head of International Tax, Tax controversy & dis- pute resolution leader, KPMG Luxembourg Valentine PLATEAU, Manager, International Tax, KPMG Luxembourg 1) Article 5 of the Luxembourg-US DTT: “ 1. Au sens de la présente Convention, l’expression « établissement stable » désigne une installation fixe d’affaires par l’intermédiaire de laquelle une entreprise exerce tout ou partiedesonactivité. 2.L’expression«établissementstable»comprendnotamment : a)unsiègededirection b)unesuccursale, c)unbureau, d)uneusine, e)unatelieret f) une mine, un puits de pétrole ou de gaz, une carrière ou tout autre lieu d’extractionderessourcesnaturelles. 3. Un chantier de construction ou de montage, une installation de forage ou un navire de forage utilisés pour l’exploration de ressources naturelles neconstitueunétablissementstablequesiladuréeduchantier,ouladurée d’utilisationde l’installationoudunaviredépassedouzemois.(…)» 2)Loimodifiéedu21juin1999portantrèglementdeprocédurede- vantlesjuridictionsadministratives,MémorialAn°98/1999,p1892, 26 juillet1999. 3) Original text in French: « L’impression nette qui se dégage de tous lesélémentsrelevésjusqu’àprésentestquelegroupes’estefforcédedonner une apparence formelle de l’existence d’une activité effective réalisée au niveau de la Succursale USA, mais que, finalement, la description sur le papier n’a pas vraiment été suivie d’effet en pratique, l’appelante ne dé- montrant notamment pas l’« autonomie décisionnelle » dont aurait joui la Succursale USA. » 4)Onthattopic,pleaserefertoourotherarticles: -E.LebasandV.Plateau,“ Administrativecourtjudgmentontaxruling and permanent establishment ”, AGEFI Luxembourg, October 2023, Page8. -E.LebasandV.Plateau,“ Administrativecourtofappealjudgmenton USbranch ”,AGEFILuxembourg,March2024,Page40. -E.LebasandV.Plateau,“ AdministrativeCourt–Judgmentonrequal- ificationofinterest-freeloanashiddencapitalcontributions ”,AGEFILux- embourg,May2025,Page38. Administrative Court –Appeal decision on US branches L e Luxembourg Insti- tute of Socio-Econo- mic Research et le ministère de l’Économie ont publié, le 24 mars, les premiers résultats de l’étude LUXTALENT , consa- crée à l’attractivité et à la ré- tention des travailleurs étrangers et frontaliers au Luxembourg. Cette analyse, couvrant la période 2002 à 2024, met en lumière un marché de l’emploi de plus en plus international, mais aussi marqué par une forte mobilité. L’étude révèle une croissance si- gnificative de la main-d’œuvre étrangère. En 2024, près de 90 % des nouveaux entrants sur le marché de l’emploi sont nés à l’étranger. Cette population est également jeune, avec environ trois quarts des primo-arrivants âgés demoins de 39 ans. Autre tendance marquante, la diversification des origines. La part des travailleurs issus des pays frontaliers traditionnels comme la Belgique, la France et l’Allemagne a nettement reculé, passant de 73 % en 2002 à 46 % en 2024. Dans lemême temps, les travail- leurs immigrés provenant de pays hors Union européenne sont de plus en plus nombreux. Du côté des frontaliers, la France renforce sa position, tandis que l’Allemagne et la Belgique enre- gistrent un recul. L’étude souligne également une évolution des profils. Une pro- portion importantede frontaliers n’est plus née dans son pays de résidence, illustrant une mobilité accrue à l’échelle européenne. Les secteurs d’activité évoluent également. Les travailleurs immi- grés s’orientent davantage vers desmétiers à fortevaleur ajoutée. En2024, les activités scientifiques, techniques, financières et d’assu- rance concentrent à elles seules 40 %des entrées.Àl’inverse, lesmé- tiersmanuels reculent fortement. Les travailleurs frontaliers restent quant à eux plus présents dans des secteurs comme la construc- tion ou le transport, même si les activités qualifiées gagnent pro- gressivement du terrain. L’étude met surtout en évidence une forte mobilité de cette main- d’œuvre. Environ 30 % des nou- veaux arrivants quittent le Luxembourg après un an, et un sur deux dans les cinq ans, ce qui pose un défi majeur en matière de rétention des talents. Pour Lex Delles, « ces travaux s’inscrivent dans une stratégie plus large visant à renforcer l’at- tractivité du pays et à mieux comprendre les attentes des ta- lents internationaux. » Une seconde partie de l’étude est attendue à l’été 2026. Elle analy- seraplus endétail lesmotivations des travailleurs à choisir le Luxembourg, ainsi que les fac- teurs influençant leurdépart, afin d’orienterlespolitiquespubliques et les initiatives comme lamarque «Work in Luxembourg ». L’étudeestdisponib lesurhttps://urls.fr/Igkx3W Source : ministère de l’Économie L’attraction et la rétention de talents au Luxembourg @Freepik