Luxembourg Tax Alert: Tribunal Tightens View on Account 115

On 25 March 2026, the Luxembourg Administrative Tribunal (case n°45846a) delivered a landmark decision on the tax treatment of reductions of account 115, offering a detailed analysis on the Luxembourg tax treatment of a very frequent transaction in the Luxembourg financial sector.

1) Background

In the present case, the shareholders of a Luxembourg listed public limited company (société anonyme, “LuxCo”) made cash contributions recorded in the account 115 of LuxCo. In the subsequent years, LuxCo incurred losses, which reduced the available 115 account. At some point in time, LuxCo generated profits, without however exceeding the amount of account 115 initially contributed by the shareholders.

In December 2018, LuxCo submitted a tax ruling to the Luxembourg tax authorities (“LTA”) seeking confirmation that a reduction of account 115 would not be subject to the 15% Luxembourg withholding tax (“WHT”) applicable to dividend distributions and/or any other income derived from all forms of participations. In March 2019, the LTA rejected this ruling request.

In April 2019, notwithstanding this rejection, LuxCo proceeded with the reduction of the account 115.

In July 2019, the LTA issued a withholding tax assessment to LuxCo, applying the 15% WHT to the amount distributed by LuxCo upon the reduction of the 115 account. LuxCo initiated legal proceedings to challenge the application of the 15% WHT, ultimately bringing the matter before the Luxembourg Administrative Tribunal.

2) Main arguments of LuxCo

LuxCo argued that the reduction of the account 115 should be treated as a repayment of “capital”, and that the prior reallocation of profits to this account should not affect its qualification.

In addition, LuxCo submitted that the transaction should fall under the scope of article 97(3)(b) of the Luxembourg Income Tax Law (“LITL”), which provides for a WHT carve-out for “distributions made in consideration for a reduction of share capital constituted by shareholders’ contributions” and that this provision should be interpreted from an economic perspective.

In this regard, LuxCo argued that the concept of “capital” should not be restricted to purely formal contribution to “share capital”, but should encompass all equity contributions made by shareholders (including account 115 contributions). LuxCo developed this argument arguing that, fiscally, tax courts assimilate the notion of “fiscal capital” to share capital, as developed in previous case law.

3) Main arguments of the LTA

The LTA took the opposite view and argued that:

• the reduction of account 115 should be regarded as a dividend derived from LuxCo’s profits;
• the allocation of profits to account 115, followed by its subsequent reduction, could be viewed as abusive and should not prevent the recharacterisation of the transaction as a dividend distribution; and
• the conditions set out in article 97(3)(b) LITL were not satisfied, due to the absence of a formal reduction of formal “share capital”.

4) Administrative Tribunal’s reasoning

The Tribunal was required to determine whether the concept of “share capital” in article 97(3)(b) LITL also encompasses “account 115”.

In the absence of a statutory definition under tax law, the Tribunal relied on corporate law principles and accounting rules, noting that although account 115 is part of shareholders’ equity, it does not constitute formally “share capital”. The Tribunal noted that the share capital is even reported separately from account 115 in the annual accounts of a Luxembourg company and has a different economic function. The Tribunal considered that this interpretation was supported both by the parliamentary works relating to article 97(3)(b) LITL and by a systemic reading of the various concepts used in the LITL. In particular, the Tribunal referred to various legal provisions of the LITL which require the existence of formal share capital, to demonstrate that references to share capital should be interpreted restrictively across all legal provisions of the LITL.

In addition, the Tribunal refused the substance-over-form approach, arguing that doing so would contradict previously issued case law where the account 115 was not deemed to be economically equivalent to share capital.

On this basis, the Tribunal adopted a strict and literal interpretation of article 97(3)(b) LITL and concluded that the provision applies only in the case of a formal reduction of share capital. A repayment of the sole account 115 does not therefore fall within the scope of this provision.

Furthermore, the Tribunal noted that LuxCo had failed to adequately demonstrate why account 115 would possess specific characteristics justifying its assimilation to share capital or why it should qualify as “fiscal capital”.

Having ruled out the application of article 97(3)(b) LITL, the Tribunal examined whether the reduction of account 115 could fall within the scope of the Luxembourg 15% WHT, which broadly applies to “dividends, profit shares, as well as any other income derived from all forms of participations” pursuant to article 97(1)(1) LITL.

The Tribunal confirmed that article 97(1)(1) LITL should be interpreted broadly. It further held that a reduction of account 115 constitutes a distribution to shareholders drawn from the company’s net assets and that, in the absence of a concomitant reduction of share capital, such reduction may fall within the scope of this provision.

In this context, the Tribunal emphasised that the origin of the distributed amounts is not decisive; rather, the key factor is the nature of the payment made to the shareholder, considered in isolation. Accordingly, it concluded that amounts initially contributed to account 115 and subsequently repaid to shareholders may be subject to Luxembourg WHT.

5) Conclusion

On this basis, the Tribunal ruled that a reduction of account 115, in the absence of a reduction of share capital:

• does not fall within the scope of article 97(3)(b) LITL;
• falls within the scope of article 97(1) LITL;
• is subject to Luxembourg 15% WHT on dividends, profit shares, as well as and any other income derived from a participation pursuant to article 146 LITL.

The judgment is of paramount importance as it adopts a stricter, formal view over distribution of account 115. Thus far, the general practice was to consider account 115 distributions to fall within the scope of article 97 (3) (b) LITL and thus, benefit from a WHT exemption if all conditions were met. If confirmed, this judgment could have far reaching consequences for Luxembourg taxpayers.

This being said, we note that the judgement can still be appealed before the Luxembourg Administrative Court and it is likely to draw much attention within the sector. Adopting such a strict approach would, in our view, lead to far reaching results which are not consistent with the “substance-over-form” approach that Luxembourg courts have consistently applied in similar cases. Therefore, it is likely that this judgment represents only an initial stepping stone of a wider saga that we will closely monitor.