Overview of Luxembourg’s draft bill on amendments to the tax procedure

Summary

The Draft Bill

Bilateral and multilateral APAs

The proposed §29c of the General tax law (Abgabenordnung (“AO”)) sets forth a procedure for concluding bilateral or multilateral APAs for TP matters, in accordance with the double tax treaties (“DTTs”) concluded by Luxembourg. The procedure is planned to be concluded between the competent authorities of the relevant states and will follow the legal framework of the mutual agreement procedure (“MAP”), as provided in the applicable DTT(s).

For any APA request, the LTA will withhold an administrative fee of between EUR 10,000 – 20,000, which will depend on the nature of the request (i.e. complexity and amount of work required). Furthermore, a Grand-Ducal regulation providing more details regarding this procedure is planned to be introduced. 

Finally, the Draft Bill provides for a clarification contained in the new §96 AO, which entails that tax assessments may be issued, modified, or withdrawn as a consequence of implementing a MAP or an arbitration decision further to the application of a DTT. 

TP requirements

The Draft Bill introduces specific TP documentation requirements (§171, alinea 4 AO), justifying that the intra-group transactions between related parties have an arm’s length character. Further details of these requirements are planned to be outlined in a Grand-Ducal regulation and are expected to follow the requirements laid out in Action 13 of the OECD’s BEPS Action Plan (Country-by-Country Reporting). 

Contesting automatic tax assessments

In cases where the taxpayer fails to file a tax return, LTA can issue an automatic tax assessment (taxation d’office), estimating the taxable result of the company.

The Draft Bill introduces clarifications by noting that an automatic tax assessment may only be challenged provided that the difference between the income or wealth assessed and the actual income or wealth exceeds 10%.

Formal conditions for a claim before the LTA

In the amended §249 AO, further details were introduced relating to the formal conditions for filing a claim before the Director of the LTA, which correspond to the conditions for filing a claim before the Administrative Tribunal. The information needed to file a claim is the following:

i)       taxpayer’s name and address;

ii)       designation of the decision against which the claim is directed;

iii)      subject of the claim;

iv)     summary statement of the facts and legal grounds;

v)      power of attorney, if relevant; and

vi)     list of documents that the claimant intends to use.

Judiciary remedy

The Draft Bill proposes to introduce a new article 8(3)(5) in the Law of 7 November 1996 on the organization of the administrative proceedings. A new time limit is planned to be introduced for filing a claim with the Administrative Tribunal in case of silence by the LTA. In particular, if no answer was provided by the Director (implied negative answer), a new time-lapse of 12 months would come into place, during which the taxpayer could file a claim before the Administrative Tribunal. Until now, this deadline did not exist. It is worth mentioning that the 12-month time limit is only applicable as of the entry into force of the Draft Bill and will not apply retroactively.

Bookkeeping requirements

The Draft Bill, in the new §160, alinea 1a AO, outlines that annual accounts that have not been published on the Luxembourg Business Register (Registre de Commerce et des Sociétés – RCS) per the amended law of 19th December 2002, are not enforceable against the LTA.

Furthermore, §171, alinea 2 AO suggests that books, documents, and all data that are provided to the LTA upon request, are to be communicated to the latter in an electronic format (if they exist in this format), while being legible, intelligible and conforming to the original.

Administrative cooperation

In the new proposed articles of the Law of 19 December 2008, the Draft Bill reinforces the exchange of information between the LTA and the Luxembourg financial regulator – Commission de Surveillance du Secteur Financier (CSSF) and insurance regulator – Commissariat aux Assurances (CAA).

Our observations

The Draft Bill should be further voted by the parliament. Proposed changes are aimed at modernisation of the procedure and providing more clarity and transparency for taxpayers, while also enhancing the administrative cooperation between authorities.

By introducing new procedures for APAs and TP requirements, the government hopes to reduce the risk of disputes and provide a more streamlined process for taxpayers.

Lastly, although most provisions will apply once the Draft Bill enters into force, some are planned to be applicable as of tax year 2024 or 1 January 2024.

For more information, you may contact:

• Jean-Nicolas Bourtembourg - Partner, Head of Tax & Transfer Pricing
• Mélina Rondeux - Partner, Tax Compliance