Tax controversy in Luxembourg – An overview
The international and domestic tax landscape is constantly evolving. As the challenges of taxpayer filings continue to increase in Luxembourg, so is the crackdown on potential tax issues of taxpayers by tax authorities. Late tax return filings can be subject to hefty fines and penalties, and even in the event of a tax assessment challenge, the lodging of a claim does not suspend the obligation to pay the taxes due.
With a greater number of cases arising, personal and corporate tax service solutions are in need of a revamp. Our team of experts are here to support you in your tax investigations and audits initiated by the Luxembourg tax authorities. Our restructured tax controversy services provide more robust, more efficient, and better managed solutions for our clients.
Tax resolution –
What to considerSource:
Chambers and Partners
To pay, or not to pay?
- As objections and appeals in Luxembourg are not suspensive before the administrative jurisdictions, deciding on paying the tax while the assessment is being litigated must be considered.
- A parallel request with the appeal to have a stay order is a possibility, but the taxpayer must show that their arguments have a reasonable chance of success and that enforcing the payment obligation would cause severe and irreparable harm.
- If the taxpayer has not obtained a suspension of obligation, late payment interest will accrue at a rate of 0.6% per month, balanced against:
- The significantly increasing cost of borrowing in case the taxpayer doesn’t avail of sufficient cash and
- The risk of the tax authorities seeking to enforce the payment obligation by seizing assets.
- The mandatory first step to challenge a corporate tax assessment is filing an objection with the director of the tax authorities.
- Due to the growing backlog at the director’s level, more and more taxpayers choose to directly appeal after 6-8 months without waiting for a director’s decision.
- Downsides? If at any time the director does adopt a decision, the appeal before the administrative tribunal becomes subject to uncertainty, and, if the decision goes against the taxpayer, the procedure must restart.
- However, filing an appeal can also spur the director to take a decision in favor of the taxpayer in cases which are likely to be lost by the tax authorities.
- More litigation = more risks. Taking out insurance opens a new market for insurers and taxpayers wishing to reduce their exposure to potentially large tax bills.
- One can also expect that brokers and insurers will look with increasing interest at Luxembourg, in view of the increasing volume and complexity of tax controversy cases.
What we cover
Our tax specialists will work with you to minimize the likelihood of a challenge or audit before a tax dispute arises. For those matters that ultimately become the subject of a dispute, we rely on external tax litigation experts to help you resolve the dispute efficiently. For international tax disputes, we work closely with KPMG’s global network of professionals.
Message from our Tax Controversy Leader
At KPMG, we are convinced that the best tax controversy case is the one that was prevented, thanks to anticipation, documentation and strategic management of any questions received from the tax authorities. Nevertheless, and whatever the step of the journey, leveraging on the expertise and experience of a dedicated team capable of supporting and accompanying our clients along the way in close collaboration with our clients' services teams is essential.
— Emilien Lebas, Tax Controversy Leader, KPMG Luxembourg
1.Prevention – Pre-audit phase
- Reviewing or preparing the supporting documentation of your material tax positions (ATAD 2, CFC, etc.);
- Reviewing transfer pricing policies;
- Reviewing VAT supporting documentation;
- Submitting Advance Pricing Agreements and Advanced Tax Agreements;
- Reviewing operational model and processes;
- Coordinating "course of conduct" reviews to ensure that post-structuring operations align with initial implementation plans;
- Assisting in transactional due diligence to identify tax audit and controversy risks and exposures;
- Carrying on pre-audits to identify transfer pricing and tax audit impacts;
- Once risks are identified, develop and implement other options to the current business model to mitigate your company's risk profile.
2.Management – Audit/Examination phase
- Audit management related to information requests;
- Assistance with strategic decisions and case management;
- Support in document production;
- Assistance in discussions with the tax authorities.
3.Resolution – Post-audit settlement/resolution phase
- Submission of pre-litigation claims with the tax authorities;
- Preparation of litigation support for court proceedings; Assistance in mediation;
- Advance Pricing Agreement negotiations using "roll-back" features to resolve pre-existing disputes;
- Check of opportunity to use Competent Authority and Mutual Agreement Proceedings to resolve international tax disputes, i.e., cases of double taxation, as well as inconsistencies in the interpretation and application of a double tax treaty and assistance to negotiations in these proceedings.
Read our tax controversy series, published monthly in the financial journal AGEFI Luxembourg. We look at the latest tax judgements, offering you insights on the most recent developments in the field of tax controversy in Luxembourg.