CJEU - Recent Developments in Direct Taxation 2025

1. Introduction

The Anti-Tax Avoidance Directive (ATAD) provides for a derogation from the measure limiting the deductibility of interest payments from the corporate tax base applicable to financial undertakings. The Directive contains an exhaustive list of entities considered as financial undertakings for this purpose. However, Luxembourg grants the derogation also to securitization entities, which are not explicitly mentioned as financial undertakings in Article 2(5) ATAD to which the optional exception granted by Article 4(7) ATAD refers.

After sending a letter of formal notice to Luxembourg on 14 May 2020, the Commission requested Luxembourg to amend its legislation in a reasoned opinion on 2 December 2021. As it considered Luxembourg’s reply to the reasoned opinion to be unsatisfactory, and Luxembourg declined to amend its legislation, on 4 July 2023, the Commission decided to refer Luxembourg to the CJEU for failing to correctly transpose the ATAD.

2. Luxembourg Law

When implementing the ATAD, Luxembourg was concerned about the impact it may have on key elements of its financial sector, which forms a crucial part of LuxS. 130embourg’s economy. In the context of the implementation of th...