TRAINING AND FURTHER TRAINING COSTS: TAX DEDUCTIBILITY
Are training and further training costs tax-deductible expenses? Are all costs tax deductible? Which costs are then tax-deductible and which costs are not eligible?
Sections 103 and 105 of the LIR state respectively that "the net income of each of the classes of income referred to in paragraphs 4 to 8 of section 10 is the excess of the revenues over the production costs", and that "expenses incurred directly to acquire, secure and maintain the revenues shall be considered production costs". In other words, taxable income is reduced by acquisition costs, and acquisition costs are all the costs incurred to obtain taxable income.
Article 12 of the LIR stipulates that "without prejudice to the provisions relating to special expenses, the following expenses are not deductible either in the various categories of net income or from the total net income: expenses incurred in the interest of the taxpayer's household and for the maintenance of the members of his family. Such expenditure also includes lifestyle expenses arising from the taxpayer's economic or social position, even when they are made with a view to benefiting or are likely to benefit the taxpayer's profession or activity".
If we examine the tax deductibility of training costs in the light of these articles, there are legitimate questions as to which costs are deductible and which are not.
The answer was finally provided by the administration and above all by established case law1.
Definition
Training costs
These correspond to all expenses incurred to prepare for the exercise of a profession or a change of profession, and are similar to the tuition fees incurred by taxpayers up to the start of their working life.
Further training costs
These costs correspond to the expenses incurred by a taxpayer who is already working to update their professional knowledge. This is in order to obtain a better qualification to meet the requirements of their profession or to facilitate advancement in their profession, without fundamentally changing their professional and personal situation.
The aim is "to acquire a better qualification in the professional branch in which the taxpayer is already active".
This notion of professional development is in the best interests of the national economy, and the courts deemed that it should not be "interpreted with excessive rigour".
Tax deductibility of training and further training costs
Training costs fall within the scope of the mixed expenses provided for in Article 12 of the LIR and are therefore not deductible from taxable income.
Further training expenses which are causally related to the taxpayer's current activity fall within the scope of the acquisition costs of article 105 of the ITA and are therefore deductible from taxable income.
Examples of special cases for the deduction of training and further training expenses
1- A young taxpayer who is already employed claims the deduction of the expenses incurred to follow the courses enabling him to obtain a master's degree. The deduction of these expenses from his income must be granted, as the diploma simply allows him to become self-employed while remaining in his professional branch.
2- A taxpayer working as a project engineer is taking courses at Oxford University to obtain an MBA, encouraged by his employer. Thanks to this training, the taxpayer was then promoted to the position of project manager. The taxpayer claimed the deductibility of the costs incurred as an further training expense, which was initially challenged by the administration of direct contributions. On the contrary, the Administrative Court of Luxembourg ruled that in this case it was a question of "professional development expenses, which are deductible because the taxpayer has improved his professional capacities without undergoing independent new training".
1-Administrative Doctrine - AS C12 98 15/02/1985
Case law
A.S TA 6/08/1997 n°9576
A.S TA 1/12/1999 n°11298
TA 3/04/2002 n°14770
TA 7/03/2011 n°26890
TA 5/10/2005 n°24848
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