Luxembourg Tax Alert 2023-03

The main provisions of Bill No. 8186 (PDF,0.2MB) (“the Bill”) can be summarized as follows.

Bilateral/multilateral Advance Pricing Agreements and Mutual Agreement Procedure

A new procedure would be introduced for bilateral and multilateral Advance Pricing Agreements (“APA”).

They would need to be presented in writing to the Director of the Luxembourg Direct Tax Authorities (“LTA”) or their delegate.

The bi- or multilateral APA would be concluded within the legal framework of the mutual agreement procedure provided for by the Double Tax Treaty between the Grand Duchy of Luxembourg and the other concerned State.

A fee would be due to cover the administrative costs incurred in processing the application, ranging between EUR 10,000 and EUR 20,000 depending on the complexity of the request and the volume of work required to process it.

As far as Mutual Agreement Procedures are concerned, ad hoc tax assessments could be issued, withdrawn, or modified according to a mutual agreement or an arbitration decision under a Double Tax Treaty.

These provisions would be applicable as from the publication of the law in the official gazette.

Transfer Pricing Policy

Documents that need to be provided upon request to the LTA, including Transfer Pricing documentation, would need to be shared in a readable electronic format, whenever it exists.
This provision would be applicable as from the publication of the law in the official gazette

In addition, Luxembourg tax resident associated companies and Permanent Establishments, part of a group in scope of Country-by-Country Reporting rules, would be required to present, upon request, a local file to justify their transfer pricing policy.
A master file would also be required for Luxembourg tax resident companies and Permanent Establishments with a turnover exceeding EUR 100 million or assets worth more than EUR 400 million (thresholds computed on a standalone basis).

A Grand-Ducal Decree will detail the scope, content and extent of the required documentation.
The draft Decree seems to be in line with the OECD guidelines.

It remains to be seen what the possible deadline and frequency for the preparation of documentation will be, and whether it will have to be contemporaneous to the financial year of the company.
Based on existing case law and on the necessity for companies to include their annual accounts in the local file, the latter might need to be prepared on a yearly basis.

This provision would be applicable as from tax year 2024.

Filing of the annual accounts

Further to the Bill, “annual accounts not published in line with the requirements of the Law of December 19, 2002 cannot be binding on direct tax authorities”.

This provision would be applicable as from tax year 2024.

As a general reminder, annual accounts are to be published on the Luxembourg company register (“RCS”) within 7 months from their closing date.

We understand, based on the explanatory statements of the Bill, that the proposed change aims at sanctioning the non-filing of annual accounts, which are necessary to establish the taxable basis.  

While we understand the willingness of the Government to sanction the lack of filing of annual accounts, such proposition, without any further clarifications, may raise a lot of questions and notably regarding the consequences of a late filing in terms of enforceability against the tax authorities.

As an example, would a taxpayer not be able to rely anymore on belated filings to challenge a tax assessment?

Further clarifications are necessary and may be requested especially by the State Council to the Chamber of Deputies

Tax collection

Taxes could be paid in instalments in case of major financial difficulties, upon request to be filed with the LTA. Interest for late payment would remain due.

This provision would be applicable as from the publication of the law in the official gazette.

Cooperation between tax and regulatory authorities

The Bill foresees enhanced cooperation and exchange of information processes between the LTA, the Financial Sector Supervisory Authority (CSSF) and the Supervisory Authority for the Insurance Sector (CAA).

This provision would be applicable as from the publication of the law in the official gazette.

Provisions applicable upon request

If a specific provision is applicable upon request (e.g., investment tax credit, single parent tax credit, etc.), such request would need to be made in the annual tax return of a taxpayer.

Should this not be the case, the taxpayer would not be entitled to request the application of the relevant provision upon filing an administrative claim at a later stage.

Estimated assessment of income (“Taxation d’office”)

An appeal against an estimated assessment of income would only be possible where the difference between the actual income or net wealth and the assessment of the LTA is of more than 10%.

This provision would be applicable as from tax year 2024.

Deadline to file an appeal with the Administrative Tribunal

In case the Director of the Direct Tax Administration remains silent and does not answer to a claim (against a tax assessment, “remise gracieuse”, or hierarchical recourse) within 6 months, the taxpayer could consider this a refusal and file an appeal in front of the Administrative Tribunal.

The deadline to do so would be within 12 months following the end of the above-mentioned 6-month period.
This could be further extended by 6 months in case of audit/investigation made by the LTA.

As a reminder, currently there is no time limit to file an appeal in front the Administrative Tribunal in case of silence of the Director of the Direct Tax Administration.

This provision would be applicable to claims filed as from the publication date of the law in the official gazette.

The Bill still needs to follow Luxembourg’s parliamentary procedure before it is adopted.

Therefore, its provisions are not final and might be subject to change.

Some provisions of the Bill are a step towards increased legal certainty in the tax procedure field. However, while a welcome improvement, there are still many tax procedural issues which are not addressed by the Bill, which would require further modernization of the tax law.

In case you would like to discuss the potential impact of the Bill on your business, please contact us.