The EU Commission has formally asked Luxembourg to amend its treatment of taxpayers who reinvest property income outside the Grand-Duchy of Luxembourg but within the EU/EEA. Capital gains from the sale of property which are reinvested abroad are taxable immediately, whereas the same capital gains, if reinvested in property in Luxembourg, benefits from a temporary tax deferral. This arrangement applies to individuals who own property in Luxembourg regardless of whether they are resident in Luxembourg or in another EU/EEA country.

According to the Commission, this constitutes an unjustified restriction on the free movement of services and free movement of capital, established respectively by Articles 56 and 63 of the Treaty on the Functioning of the European Union (TFEU) and the corresponding Articles 36 and 40 of the EEA Agreement. The EU Court of Justice has already issued a ruling to this effect in its judgment of 26 October 2006 in Case C-345/05, Commission v Portugal.

The Commission’s decision takes the form of a reasoned opinion. If it does not receive a satisfactory response within two months, the Commission may decide to take Luxembourg to the EU Court of Justice.

For further details, see the Commission’s website.