On 28 March 2023, a number of new measures on the procedural aspects of tax assessments, tax appeals as well as clarifications regarding transfer pricing documentation, advance pricing agreements (APAs) and mutual agreement procedures (MAPs) were proposed by the Luxembourg government in bill of law Nº 8186 (the Draft Bill). Some of the proposed changes will have a restrictive effect on taxpayers, in particular in connection with challenging decisions. Below we have prepared a summary of the key changes proposed.

Consequences of late filing of annual accounts

Under the Draft Bill, if corporate taxpayers fail to file their annual accounts by the statutory deadline, the Luxembourg tax authorities (the LTA) will consider those accounts as nonbinding and as a result will not be obliged to rely on them when assessing the filed tax returns, meaning that taxpayers would not be allowed to rely on such accounts to challenge an assessment or other decision of the tax authorities. If approved, the entry into force of this measure will considerably reduce the possibility for taxpayers to challenge decisions rendered by the LTA.

Restrictions on amending ex officio tax assessment

On the basis of Article 271 of the General Tax Law (Abgabenordnung or AO), if taxpayers do not file a tax return the LTA are permitted to issue ex officio tax assessments estimating the amount of taxable income, which is calculated from the information available. Until now and for standard claims, taxpayers could introduce appeals against such ex officio tax assessment and, if successful, the LTA’s assessment would be consequently cancelled.

By amending Articles 94 and 232 AO, the Draft Bill significantly restricts taxpayers’ right to appeal ex officio tax assessments. The proposal will render such ex officio tax assessments binding on the taxpayers unless they can prove that there is a more than 10 percent difference between the actual tax liabilities and the ex officio tax assessment.

Requests for tax credits and expense deductions

Among other things, the Draft Bill adds additional conditions to Article 85 AO such that any request for granting a tax credit (single-parent tax credit, tax credit for investment, etc.) or deduction of extraordinary expenses can only be made at the time of filing the tax returns but not by submitting supplementary documents that are not part of the initial tax returns, as is the case currently. The commentary to the Draft Bill emphasizes that the LTA are not able to rule on elements if they cannot be considered by the tax administration in the first place.

Payment of the treasury claim in installments

The new article 12a of the Law of 27 November 1933 on the collection of taxes emphasizes that tax bills paid in installments (normally granted when the taxpayer suffers hardship) neither precludes the LTA from asserting its mortgage rights nor puts on hold claims for late payment interests. Also note that Article 127 AO on the possibility of deferring exit tax would be similarly amended.

Tax appeal procedures

Another key measure addressed by the Draft Bill concerns the normalization / regularization of tax appeal procedures. When it comes to lodging an appeal with the director of the LTA, based on the newly proposed amendments to Article 249 AO, such appeal must be made by a written request duly signed by the taxpayer or its representative. The written claim must include all the following information:

1. The taxpayer’s name and address
2. The designation of the decision against which the claim is filed
3. The purpose of the claim
4. A summary of the facts and arguments
5. The mandate (if applicable)
6. The documents supporting the appeal to the claim

Please note that requests submitted to the director of the LTA that lack any of the above information will be declared inadmissible.

Based on the current administrative practice, if the director of the LTA does not respond to the taxpayer’s appeal / claim within six months, the taxpayer can bring the case before the administrative tribunal. The Draft Bill, by introducing a new Article 8, paragraphs 3 and 5 of the Law of 7 November 1996 on the organization of the administrative proceedings, proposes to implement a 12-month deadline for the taxpayer to initiate the court procedure. Currently no such deadline exists. This proposed deadline will apply to objections filed after publication of the law in the Official Journal.

Transfer pricing documentation

By amending Article 171 AO, the Draft Bill emphasizes that transfer pricing documentation must be made available to the LTA if so requested and that the scope, exact content and magnitude of the transfer pricing documentation should be aligned with the applicable grand-ducal decree and international standards resulting from the OECD BEPS Action 13 report.

Introduction of a new APA / MAP procedure

In terms of APAs, the amendments to Article 29c AO as set out in the Draft Bill provides the legal basis for APAs concluded under procedures set out in the relevant double-tax treaty to be binding upon the LTA. By the same amendment, the Draft Bill proposes to introduce an administrative fee for processing APA requests, between €10,000 and €20,000, depending on the complexity of the request and the volume thereof.

By introducing a new Article 96(a) AO, the Draft Bill gives the LTA the right to issue, withdraw or amend a tax assessment in accordance with the conclusion of a MAP or an arbitration decision in accordance with the provisions of an applicable double-tax treaty. This is a welcomed clarification.