CJEU Advocate General backs Luxembourg's ATAD approach for securitisation vehicles

Advocate General Juliane Kokott from the Court of Justice of the European Union has issued an Opinion that supports Luxembourg's approach to applying the EU Anti-Tax Avoidance Directive (ATAD 1) to certain securitisation vehicles. 

Following a challenge from European Commission, Advocate General Kokott takes the view that Luxembourg has not infringed ATAD 1 by excluding certain securitisation vehicles from the scope of the interest deduction limitation rule (IDLR).

This case is significant for Luxembourg entities subject to the EU Securitisation Regulation and for Luxembourg, which is a leading international jurisdiction for securitisation and structured finance transactions.

If followed by the Court of Justice of the European Union (CJEU), this guidance would provide welcome certainty for securitisation structures and could clarify how much flexibility Member States have when implementing EU tax directives. 

Background 

This case has raised issues regarding the interpretation of the exemption for financial undertakings under the amended Council Directive (EU) 2016/1164 (known as ATAD 1), as implemented into Luxembourg law through Article 168bis of the Luxembourg income tax law of 4 December 1967, as amended (the LITL). 

Article 168bis LITL provides for a number of exclusions from the scope of the IDLR, including an exemption for certain financial undertakings. In this context, Luxembourg’s implementation extends that exemption to SSPEs within the meaning of Article 2(2) of Regulation (EU) 2017/2402 (the EU Securitisation Regulation), thereby excluding such entities from the IDLR. 

This legislative choice was challenged by the European Commission, which argued that the definition of “financial undertakings” set out in Article 2(5) ATAD 1 constitutes an exhaustive list. On that basis, the Commission took the view that Member States are not permitted to broaden the scope of the exemption by including additional categories of entities, such as SSPEs not expressly referred to in ATAD 1. 

The Advocate General’s position 

In her Opinion, Commission v Luxembourg (C-138/24), the Advocate General recommends that the European Commission’s action be dismissed in its entirety. 

She considers that Luxembourg’s transposition of ATAD 1 is consistent with both its wording and objectives. In particular, she acknowledges that, although SSPEs are not expressly listed among the “financial undertakings” referred to in Article 2(5) ATAD 1, entities falling within the scope of the EU Securitisation Regulation display characteristics that align them closely with regulated financial institutions. 

From both an economic and functional perspective, these entities operate in a manner comparable to financial undertakings, notably as they are predominantly debt-funded and act as intermediaries in financial markets. On that basis, the Advocate General considers that their inclusion within the scope of the exemption is justified. 

More fundamentally, the Opinion highlights that ATAD 1 establishes a framework of minimum harmonisation. Within that framework, Member States retain a certain margin of discretion when implementing ATAD 1, including in defining the scope of the exemption for financial undertakings, provided that the underlying objectives of ATAD 1 are respected. 

The Advocate General concludes that Luxembourg’s approach is compatible with Articles 2(5) and 4(7) ATAD 1 and complies with general principles of European Union law, in particular the principle of equal treatment. 

Although Advocate General Opinions do not bind the European Court of Justice, they frequently provide important guidance for its analysis. 

Why this matters 

In practice, securitisation vehicles typically operate as financing platforms structured around debt issuance, with their economic model largely driven by interest-bearing liabilities. As a result, any restriction on the deductibility of borrowing costs would directly affect their neutrality and overall efficiency from a tax perspective. 

The forthcoming judgment is expected not only to clarify the scope of the financial undertakings exemption under ATAD 1, but also to provide more detailed guidance on the degree of discretion afforded to Member States when transposing European Union directives into national law.

From a structuring perspective, it is important to keep in mind that the scope of the EU Securitisation Regulation is distinct from that of the Luxembourg law of 22 March 2004 on securitisation, as amended. The two regimes do not operate by reference to the same criteria, and the application of the EU Securitisation Regulation is not limited to Luxembourg securitisation undertakings governed by the Luxembourg Securitisation Law. 

This distinction is particularly relevant because, unlike the Luxembourg Securitisation Law, which is based on an opt-in regime, the EU Securitisation Regulation applies automatically where the relevant transaction and parties fall within its scope. As a result, a Luxembourg securitisation vehicle may, depending on the structure, be subject to both regimes. 

This point is especially relevant for transactions involving debt instruments with different levels of subordination, such as senior and junior notes, or structures combining senior and junior loans. These types of transactions would typically require a dedicated analysis under the EU Securitisation Regulation. 

How Ogier can help 

If you would like to explore the opportunities available for securitisation and structured products or discuss structuring options, contact our Tax and Banking and Finance teams in Luxembourg. 

Our experts have extensive experience and offer tailor made and creative tax and legal solutions to achieve our clients' objectives. 

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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