The Luxembourg government proposes to reform certain aspects of the tax assessment and tax litigation procedures, as well as certain documentation obligations, in a bill of law dated 28 March 2023. This notably affects advance pricing agreements (APAs), mutual agreement procedures (MAPs) and transfer pricing documentation. More importantly, some of the proposed changes will impact the rights of taxpayers to challenge tax assessments.
Transfer pricing developments
Bilateral and multilateral APAs
Apart from the introduction of an administrative fee ranging between EUR 10,000 and 20,000, a bilateral or multilateral APA would be concluded within the framework of a MAP under the applicable tax treaty. This clarifies the legal basis for these APAs to be binding on the Luxembourg tax authorities. Further regulations will detail the procedure for obtaining such APAs.
Tax adjustments further to MAPs
The bill of law proposes to lay down explicitly the right for the tax authorities to issue, withdraw or modify assessments pursuant to a MAP or an arbitration decision in application of a tax treaty, provided the conditions and obligations imposed by such MAP or arbitration decision are met. This amendment would set aside any doubt on the possibility to make such amendments beyond the regular statute of limitation.
Transfer pricing documentation
Taxpayers forming part of a group will be requested to avail of more specific documentation allowing to justify the applied transfer pricing policy. Future regulations will detail scope and content. This additional requirement seems to go beyond the current obligations of taxpayers to document the at arm’s length character of their intra-group transactions.
Consequences of failure to comply with legal obligations
Negative impact of untimely completion of annual accounts
A taxpayer failing to file annual accounts on time, would not be able to rely on such accounts to challenge an assesment or other decision taken by the tax authorities. This also means that accounts approved and filed late cannot be opposed to the tax authorities. Board of managers should make sure meeting account approval and filing deadlines to mitigate tax risks.
Challenges to ex officio assessment
When a taxpayer fails to file a tax return notwithstanding reminders of the tax authorities, the latter can issue an ex officio assessment approximating the taxable result of the company. The bill of law proposes that ex officio assessments may (i) no longer be withdrawn by the tax inspector upon request and (ii) no longer be objected against to the extent the difference between the amount of taxable income or wealth retained in the ex officio assessment and the actual amount of taxable income or wealth does not exceed 10%.
Challenging tax assessments
Clarification rules on filing objections
The formal conditions for an objection against tax assessments are clarified. An objection shall include (i) a precise identification of the person for whom the objection is filed, (ii) the identification of the challenged decision, (iii) the object of the request, (iv) a high-level summary of the facts and arguments, (v) a proof of mandate (for certain persons representing the taxpayer) and (vi) a list of the evidence which the taxpayer intends to rely upon.
Appeals to the administrative tribunal absent a decision of the tax authorities’ director
Under current rules, if the director of the tax authorities fails to rule on an objection within 6 months, the taxpayer is free to file an appeal with the administrative tribunal directly against the tax assessments which are subject to the objection at any time – as long as no director’s decision is issued. The bill of law proposes to introduce a 12-month limitation period for filing such appeal, once the 6-month response period of the director has expired. This will apply to objections filed after the publication of the law in the Official Journal.
A welcome change is that the lack of response of the director to hierarchical appeals (a type of administrative challenge against certain decisions of the tax inspector other than assessments, e.g., a refusal to grant a tax payment deferral or suspension) would no longer prevent the taxpayer from filing an appeal with the administrative tribunal. The rules would be aligned with those for an objection, i.e., after 6 months without response from the director, the taxpayer would have 12 months to file an appeal with the tribunal. This will apply to hierarchical appeals filed after the publication of the law in the Official Journal.
Limitation period extension in case of exit tax payment deferral
Taxpayers can benefit from an exit tax payment deferral under certain circumstances if they transfer assets to another EU member state. The bill of law proposes that the limitation period for the tax recovery will be suspended during the deferral period.
Increased cooperation between public authorities
The bill of law also sets a framework pursuant to which the direct tax authorities may exchange information with the financial regulator (commission de surveillance du secteur financier, CSSF) and the insurance regulator (commissariat aux assurances, CAA).
Next steps
The bill of law will be examined and voted by Parliament. Some restrictions to taxpayers’ rights are expected to raise questions on whether they are proportionate. Representatives of taxpayers should furthermore make sure to have an explicit mandate when filing an objection or hierarchical appeal with the director of the tax authorities.
