“The state, by way of exception, waives the limitation period in respect of the 2018 tax year,” stated the Registration Duties, Estates and VAT Authority (AED) in a press release, clarifying that independent board directors affected by the European Court of Justice’s ruling are entitled to a tax refund for the 2018 calendar year, if applicable. Archive photo: Romain Gamba / Maison Moderne

“The state, by way of exception, waives the limitation period in respect of the 2018 tax year,” stated the Registration Duties, Estates and VAT Authority (AED) in a press release, clarifying that independent board directors affected by the European Court of Justice’s ruling are entitled to a tax refund for the 2018 calendar year, if applicable. Archive photo: Romain Gamba / Maison Moderne

Independent board directors in Luxembourg can retroactively reclaim value-added tax (VAT) payments since 2018, following the European Court of Justice ruling in case C-228/22 that deemed them exempt from VAT.

Independent board directors can retroactively reclaim value-added tax they have paid since 2018 following a recent European Court of Justice ruling, Luxembourg tax officials have said.

In December 2023, the ECJ that independent board directors were not conducting independent economic activity and therefore should not be subject to the VAT that they have been paying.

Luxembourg’s Registration Duties, Estates and VAT Authority (AED) in a statement said the court ruling reaffirmed the principle that it is “up to economic operators themselves to apply the objectively applicable VAT rules to their transactions on the basis of the intrinsic characteristics of those transactions and the specific rules governing them, the legislator having instituted an ex post taxation procedure by way of control, implemented by the” AED, according to an unofficial translation of the AED’s statement that the Luxembourg Directors’ Institute (ILA) provided to its members.

Following the ECJ’s judgment, individuals who believe they are affected by the ruling must take proactive steps, AED said in its on Monday 15 January 2024. They are required to  “issue corrective invoices to the taxable persons taking his services and to justify to the AED a right to a refund of the VAT wrongly levied,” read the ILA’s unofficial translation.

In a related development, the AED, through its circular no. 781-1 dated 22 December 2023, indicated its intention to introduce a streamlined, non-bureaucratic process for tax regularisation specifically for board directors. This initiative will be facilitated through a “specific online procedure” available via the government’s Myguichet portal, stated AED, per the ILA translation.

The ECJ’s ruling also has retrospective applicability and “Anyone may invoke this ruling in their favour for the tax years for which the statute of limitations has not yet expired.” Under Luxembourg’s tax code, refund requests are “time-barred after five years from 31 December of the calendar year to which the tax to be refunded relates.”

However, considering that the ECJ ruling was only issued on 21 December 2023, AED recognises that affected persons did not have a sufficient period to exercise their rights emanating from this ruling. As a result, the state has, in an exceptional measure, decided to waive the limitation period for the 2018 tax year.

The ILA, a non-profit trade group focused on promoting directors training and corporate governance standards in grand duchy, announced plans for a meeting with the AED in January 2024 to seek additional clarifications on VAT regularisation.

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