In its judgment of 22 January 2021, the Luxembourg Constitutional Court had the opportunity to rule on the value of the principles of legal certainty, protection of legitimate expectations and non-retroactivity of laws when assessing the conformity of the law of 23 July 2016 amending, inter alia, the law of 23 December 2005 (the so-called RELIBI Law).
The facts leading to this decision concerned a Luxembourg resident individual who held Swiss bonds and regularly received interest from a paying agent established in Switzerland. Under the law of 23 December 2005, the taxpayer concerned had the possibility to opt for a final 20% tax levy on the interest paid by a paying agent established in Switzerland. The law of 23 July 2016, amending the law of 23 December 2005, no longer provides for this option if the paying agent is established in Switzerland so that the interest received is subject to the application of the normal progressive income tax scale. The law of 23 July 2016 is, according to its article 4, retroactively applicable as from 1 January 2016. As a result, the tax authorities denied the benefit of the final tax levy on interest payments received in 2016.
In its judgment, the Constitutional Court recalls its judgment of 28 May 2019 in which it held that the rule of law is inherent to the Luxembourg Constitution. The Constitutional Court then refers (i) to the case law of the European Court of Justice and the European Court of Human Rights, according to which the principle of legal certainty is part of the principle of the rule of law, and (ii) to the importance that the Council of State gives to the principle of legal certainty in the context of its ex ante control of the conformity of laws. Finally, the Constitutional Court concludes that the principle of legal certainty, and its expressions, such as the principles of legitimate expectations and non-retroactivity of laws, are part of the fundamental principle of the rule of law, which may be contravened only if justified by reasons of general/public interest.
As for the law of 23 July 2016, the Constitutional Court found that it retroactively withdrew the benefit of the final 20% tax levy from the taxpayer concerned, in such a way as to adversely affect his legitimate expectations regarding the tax regime applicable to interest payments. As the legislator has not put forward any justification of general interest for this retroactive application of the law, the Constitutional Court concludes that the retroactive application of this law is contrary to the Luxembourg Constitution.
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