Bilateral and multilateral APAs
The draft law clarifies the application procedure for bi- or multilateral APAs (BAPA). A draft grand-ducal decree lists the formal requirements for a complete BAPA application, including a regularly updated transfer pricing (TP) study in line with OECD guidelines and a discussion of any pertinent ancillary tax issues raised by the proposed TP methodology. Based on this BAPA application, the competent authorities decide as to whether the application will be accepted or rejected. The draft law introduces an administrative fee ranging between €10,000 and €20,000 for processing the BAPAs.
Mutual agreement procedure
The draft law introduces a new provision which explicitly allows that tax assessments can be issued, withdrawn or modified as a result of a MAP or arbitration decision based on applicable double tax treaties entered into by Luxembourg.
Transfer pricing documentation
The draft law and a draft grand-ducal decree provide for further guidance on transfer pricing documentation that shall include a local file and master file as from the tax year 2024.
The local and master file shall be provided upon request by the taxation office during the process of the tax assessment. There is no specific deadline upon request, but often the taxpayer will get a delay of 30 days.
No binding effect of annual accounts that were filed late
As from 1 January 2024, annual accounts that have not been filed with the trade register (RESA) electronically in due time or due compliance shall not be binding on the direct tax authorities. The wider ramifications of this proposed change still remain to be analysed, for example with regard to the tax principle of correlation between commercial and tax accounting and the procedural principle of fairness that submissions from both parties shall be heard and be based on an equal footing (principe du contradictoire).
Administrative appeals
Taxpayers can lodge an administrative appeal (réclamation) against tax assessments issued by the tax office and thus have their full case reviewed by the tax director. This administrative appeal procedure must be followed before a case could be litigated in the courts. It shall ensure an internal control within the direct tax authorities and reduce the workload of the courts.
The draft law proposes several changes effective as from 1 January 2024. A major change will be the new requirement to substantiate the appeal with a summary of the facts and with a legal reasoning. If the administrative appeal is not compliant with the strict formal requirements, it will be dismissed.
Administrative appeals will also be rejected, if taxpayers have not brought their case to court within 18 months of inactive proceedings before the tax director: If the tax director does not respond to an administrative appeal within six months, the absence of response shall imply a negative decision. This procedural rule shall also apply to complaints (recours hiérarchique formel). After the expiration of this six-month period, the taxpayer can either continue to wait for a decision from the tax director or directly bring the case before the administrative tribunal, the first-instance court. The draft law introduces a new time limit of 12 months for filing this lawsuit with the court. The 12-month period starts after the lapse of the six-month period without response. It shall be extended by six months in case of an investigation ordered by the tax director. If the taxpayer had not filed the lawsuit with the court within this time limit, the disputed administrative decision (e.g., tax assessment) will become final. The proposed change aims at an efficient processing of cases pending before the tax director.
Estimated tax assessments (taxation d’office)
Where the direct tax authorities cannot determine or calculate the tax base, they shall estimate the tax base ex officioand may issue an estimated tax assessment (so-called taxation d’office). This may occur in cases where no tax return was filed by taxpayers, despite several reminders and warnings. Estimated assessments shall also be made if a taxpayer, who has filed a tax return, is unable or unwilling to provide sufficient clarification regarding the tax declaration or if the accounting records are incomplete or incorrect. The estimation of the tax base may include a mark-up and could thus be higher than the actual income.
The draft law is about to restrict the legal remedies of taxpayers against theseestimatedassessments as from the tax year 2024:
Taxpayers shall no longer be allowed to request a rectification (so-called redressem*nt simple or schlichte Änderung) of estimated assessments that were issued due to the non-filing of tax returns.
Taxpayers shall no longer be able to lodge an administrative appeal (réclamation) against estimated assessments, unless the tax base estimated by the direct tax authorities differs from the actual income or wealth by more than 10%.
Instalments of tax payments
The payment of tax by instalments over a period of maximum six months may be requested by the taxpayers from the tax collector (receveur), provided that the immediate tax payment causes considerable difficulties for the taxpayer and provided that the tax deferral will not put the recovery at risk. A guarantee deposit may therefore be requested by the tax collector. Interest shall continue to accrue on the outstanding tax payment at the current rate of 0.6% per month. According to a draft grand-ducal decree, withholding taxes and advance tax payments may not be paid in instalments.
Administrative cooperation
The draft law also proposes a reinforced cooperation between the tax authorities and the Commission de Surveillance du Secteur Financier (CSSF) and the Commissariat aux Assurances (CAA) to exchange information.
Modernisation of the tax administration
Since external IT consultants may have to be engaged to help the direct tax authorities with their digital transformation, the tax secrecy shall be extended to external persons. Like tax officials, external persons will be legally obliged to keep tax information confidential under the threat of imprisonment of up to six months or fines up to €5,000.
Going forward, the direct tax authorities may request from taxpayers the submission of documents in electronic format (if available). The required data format may be standardised with that used by other administrations (in particular, the so-called Fichier Audit Informatisé AED (FAIA) file used in VAT matters).
Entry into force
The draft law will have to be debated and voted upon by parliament and be approved by the state council. Amendments to the draft bill may be made during the legislative procedure.
The new provisions, if voted upon positively, will be applicable from the date of publication of the law in the Official Journal, unless indicated otherwise (e.g., the proposed changes to the appeal procedure shall apply as from the tax year 2024).
