Higher Administrative Court rules that actual travel expenses may be substituted for flat-rate deduction on grounds of ability to pay

Source : BSP
7 août 2023 par
Legitech, LexNow

In a judgment dated 25 April 2023 (docket n° 47680C), the Luxembourg Higher Administrative Court (Cour administrative) (the “Court”) handed down a decision concerning the deductibility of travel expenses incurred by a taxpayer when commuting from her home to her work place(s).

The decision is of particular interest, as it (a) disapplied the specific legal provisions, introducing a flat-rate deduction for expenses incurred by a taxpayer for any journeys travelled between home and workplace, on grounds of ability to pay (principe de la capacité contributive) and as it (b) made use of the ex officio assessment process (taxation d’office) in favour of the taxpayer.

Facts of the case

The case at hand concerned a self-employed doctor, whose professional activity required regular and sometimes urgent commutes between her home and the hospital. These commutes could occur without prior notice, day and night, and often several times during the same day, as the taxpayer mainly performed emergency care services and surgeries.

The tax office considered that all travel expenses incurred by the taxpayer were covered by the flat-rate deduction foreseen for by article 46, n° 9, of the Luxembourg income tax law and the grand-ducal decree dated 28 December 1990, applicable to commutes between home and workplace. It denied the taxpayer’s request of substituting the actual, higher, expenses incurred for the flat-rate deduction foreseen by law.

After both the Director of the Direct Tax Administration (Directeur des Contributions) and the Lower Administrative Court (Tribunal administratif) had rejected the taxpayer’s appeal against the tax assessments issued, the matter was brought before the Higher Administrative Court.

Findings of the Court

The application of the principle of the ability to pay

The Court starts its reasoning by recalling the principle of the ability to pay (principe de la capacité contributive), which is derived from the constitutional principle of equality before the law and means that people with the same ability to contribute to the public charges must be subject to the same level of taxation.

According to the Court, this fundamental principle implies that negative cashflows linked to the generation of income, such as the expenses incurred by taxpayers when commuting from their place of residence to the place where they carry out their dependent or self-employed professional activity, must be taken into account in an adequate manner.

While the legislator is in principle entitled to derogate from the principle of the deduction of actual expenses by introducing flat-rate deductions, in areas where there is a certain need for simplification, irrespective of whether there may be unequal consequences for certain taxpayers, this is only true – according to the Court – insofar as the infringement of the principle of taxation according to the ability to pay is not excessive.

In particular, the Court finds that a flat-rate deduction may only be applied to a taxpayer insofar as his or her situation falls within the scope of those situations that the flat-rate deduction is intended to govern. Conversely, the principle of the ability to pay tax, considered in this context in its objective aspect, implies that the taxpayer is entitled to invoke the taking into account, according to the rules of ordinary law, of expenses incurred beyond the personal situation covered by the flat-rate system.

As the flat-rate deduction regime for travel expenses from home to work was introduced, based on the assumption of a single round trip travel per day, while the taxpayer at hand regularly commuted multiple times per day from her home to the hospitals where she provided emergency care and carried out surgery, in addition to her other professional journeys, the Court arrives to the conclusion that the request for deduction of actual expenses beyond the mere flat-rate allowance had to be granted on the basis of the principle of the ability to pay.

The use of the ex officio assessment as a means of determining the adequate amount of deductible travel expenses

In a second step, the Court stated that, although there remained some uncertainties as to the taxpayer’s precise business mileage during the disputed tax years, due to the absence of journey log books, these uncertainties could not constitute a pretext for the tax office to reject her claim for deduction in its entirety.

The Court rather recalled that the Luxembourg general tax law (Abgabenordnung) provides for the possibility of an ex officio assessment process (taxation d’office), which is meant to be used – even vis-à-vis diligent taxpayers – as a method for determining a tax base that complies with the principles of legality of taxation as well as equality before public charges. On the basis of the evidence submitted by the taxpayer, the Court then estimated, in accordance with the ex officio assessment method, the amount of deduction for travel expenses to be granted to the taxpayer.


Although the case at hand featured a very specific and unique fact pattern, the decision rendered by the Court is remarkable in its interpretation of the general constitutional principle of the ability to pay with respect to flat-rate deductions generally, as well as in its taxpayer-friendly application of the ex officio assessment process.