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Tax Evasion vs Tax Avoidance The distinction between tax evasion and tax avoidance can often blur, but it’s a line that the so-called ‘ghost’ company in Luxembourg has shrewdly grasped.


There is a fine line between tax evasion and tax avoidance. The Luxembourg “ghost” company has understood this well.

The daily Le Monde, following the OpenLux study, reveals that 38.5% of Luxembourg companies are financial holding companies. These companies can hold foreign companies.


These financial holding companies are mostly offshore companies with no real activity or employees. These simple “mailboxes” nevertheless represent a portal to the distribution of money from abroad. 


Avoid dividend taxes, evade capital gains tax, reduce income tax; Interposing a Luxembourg company between the French company and the tax authorities has many advantages.


Today, this situation corresponds to the daily life of 15,000 French owners, i.e. an estimated value of only 50% of companies declared in Luxembourg. These companies alone represent 4% of French GDP.


However, this practice oscillates between legality and illegality, between optimization strategy and abuse of tax law.


Article L64 of the Book of Tax Procedures (1) defines abuse of rights as the fact of diverting the intention of the original law in order to profit from it. We then speak of abuse of tax law for evasion of the law. Traditionally, for the abuse of rights to be qualified, the objective of the device must be exclusively fiscal in order “to evade or attenuate fiscal charges”.


The European Union (5) has intervened to combat tax avoidance practices which have a direct impact on the functioning of the internal market.


Indeed, Openlux has made it possible to establish that more than 6,000 billion euros of financial assets were stored, in 2019, in Luxembourg without anchoring in the real economy.


Since 2020, article L64 A of the book of tax procedures (2) provides for a broader concept of abuse of rights. From now on, the abuse of rights must have as its “main” and no longer exclusive reason, “that of evading or reducing the tax burden”.


Recently introduced, this anti-abuse provision counters the current craze for corporate tax evasion. 


Internet users can also consult the news on the impact of this law on the transfer of assets: -of-the-abuse-of-rights-its-impact-on-heritage-transmission


What are the consequences of abuse of rights for breaking the law?


Articles 1729 (3) and 1741 (4) of the General Tax Code answer this question by adding tax penalties and criminal penalties. We count :


an increase in taxes due from 40 to 80% depending on whether or not the taxpayer has the main initiative.

the attribution of a fine of €37,500 and imprisonment for a maximum of five years if he voluntarily participated in the fraud.

Unfortunately, transparency with the tax authorities cannot mitigate these sanctions since neither employee, nor mandate, nor economic objective can be justified within the company.


The current scandal unfortunately threatens all Luxembourg companies with French ownership. The tax administration will redouble its efforts to promote its economic interests. Police custody, emotional pressures, threats of sanctions can affect you.


Your lawyer, qualified in the matter, will be able to defend you by pleading on the legality of the tax optimization. Because yes, convictions for fraud are slim when you are well supported in your steps.


Does your situation worry you? Do not wait any longer. Contact our study. Master DAMY Gregory , specialized in business law and company law, will be at your disposal to best serve your interests.


1/Article L64 of the Book of Tax Procedures:


2/ Article L64A of the Book of Tax Procedures:


3/Article 1729 of the General Tax Code:


4/Article 1741 of the General Tax Code:


5/Council Directive (EU) 2016/1164 of 12 July laying down rules to combat tax avoidance practices which have a direct impact on the functioning of the internal market: legal-content/ FR/TXT/HTML/?uri=CELEX:32016L1164&qid=1554885315139&from=FR _


6/ Le Monde video clip: what the OpenLux operation reveals: -ur-de-l-europe_6069141_1669088.html