On 28 March 2023, the government presented Bill of Law 8186 ("Bill"), which provides a set of amendments to the General Tax Law (Abgabenordnung, AO) dated 22 May 1931 and introduces new procedural aspects applicable to taxpayers. The Bill also introduces new bilateral and multilateral advance pricing agreement procedures, together with the possibility to issue, withdraw or amend a tax assessment further to a mutual agreement procedure (MAP) or an arbitration decision. Lastly, the Bill proposes a transfer pricing (TP) documentation requirement for transactions between associated enterprises, while further details regarding the scope, exact content and magnitude will be unveiled soon in a coming grand ducal decree.
The changes will be applicable once the law is published in the memorial, except for some that will be applicable either as of 1 January 2024 or fiscal year 2024.
For further information and to discuss what this development might mean for you, please get in touch with your usual Baker McKenzie contact.
The most important changes are the following:
- New advance pricing agreement (APA) procedure (New §29c AO): A new bilateral or multilateral agreement procedure on TP matters as provided under the double tax treaties concluded by Luxembourg has been proposed. Any APA request will be concluded between the competent authorities within the framework of the mutual agreement procedure set forth under Article 25 (3) of the OECD Model Tax Convention and its related commentaries. The Luxembourg tax authorities will set an administrative fee for processing the file, ranging between EUR 10,000 and EUR 20,000 depending on the complexity of the request and the volume of work. A grand ducal decree will be adopted and provide further details on this new procedure. This new procedure comes in addition to other existing advance tax agreement (§29a AO) and advance pricing agreement (§29b AO) procedures.
- Mutual agreement procedure and arbitration: New §96 AO includes the possibility to issue, withdraw or amend a tax assessment further to a mutual agreement procedure or an arbitration decision in accordance with the provisions of a double tax treaty to the extent that the conditions required by the said mutual agreement procedure or arbitration decision are met.
- TP documentation (§171 al 4 AO): The Bill introduces TP documentation requirements (i.e., all the documents that taxpayers are obliged to prepare to evidence that their related party transactions were performed under arm's length conditions and at arm's length prices) for transactions between associated enterprises. The scope, exact content and magnitude will be provided through a grand ducal decree and should be in line with international standards resulting from the OECD BEPS Action 13 report.
- Remedies against lump-sum tax assessments (combined reading of §217 AO with new §94 al 1 AO and §232 al 1a AO): Taxpayers will not be entitled to rely on a simple tax adjustment procedure provided under §94 AO to the extent the taxpayer has been subject to a lump-sum taxation (with some exceptions if the adjustment is requested on isolated items pertaining to the taxable basis). Additionally, and in line with constant case law on the matter, taxpayers will only be able to challenge the amount of taxes due under a lump-sum tax assessment to the extent the difference exceeds 10%.
- Alignment of the claim procedure before the Luxembourg direct tax authorities with the one before administrative tribunals (§249 AO): The conditions under which a taxpayer can file a claim before the director of the direct tax authorities is now explicitly detailed and will follow the same existing conditions applicable for a recourse before the administrative tribunal. Similar to a claim before the director of the Luxembourg direct tax authorities, introducing a claim before the administrative tribunal does not require the appointment of a lawyer. The new provisions provide that any claim brought before the director of the direct tax authorities is made by a written request duly signed by the taxpayer or its representative. The written claim should include all of the following information: i) the taxpayer's names, surnames and address; ii) the designation of the decision against which the claim is filed; iii) the purpose of the claim; iv) a summary of the facts and legal grounds invoked; v) the mandate (if applicable), which needs to be attached to the request (it was upon demand until now), and vi) the supporting documents to the claim. Requests that do not contain the information listed above will be declared inadmissible.
- Deadline for introducing judiciary remedy (new Article 8 (3) (5) of the Law of 7 November 1996 on the organization of the administrative proceedings): A 12-month deadline for a recourse before the administrative tribunal further to the director of the tax authorities' silence has been introduced. When no answer is provided after a six-month period from filing a claim before the director of the direct tax authorities has elapsed (i.e., implicit negative answer), taxpayers now have a 12-month period to claim before the administrative tribunal. There was no deadline until now. This only applies to claims lodged after the law enters into force. Therefore, it does not affect pending claims filed with the director of the direct tax authorities. The 12-month deadline can be extended by six additional months upon an investigation measure ordered by the director of the direct tax authorities.
- Bookkeeping obligations — clarifications regarding the format of information to be provided upon demand by taxpayers (new §160 al1a AO and new §171al2 AO): When bookkeeping information, documents or data of any type that needs to be provided to the tax authorities upon demand exists in an electronic format, it will have to be provided upon the tax authorities' demand in an electronic format that is readable, directly intelligible and an exact copy of the original. Additionally, the Bill also foresees that annual accounts that have not been published on the Luxembourg company register (RCS) as required under the Law of 19 December 2002 are not enforceable against the Luxembourg tax authorities.
- Payment in installments of the treasury claim (new Article 12a of the Law of 27 November 1933 on the collection of taxes): The Bill will enable tax collector officers to allow payment in installments of the treasury claim upon taxpayers' demand, but to the extent that the collection causes considerable difficulties to the taxpayer and that the claim is not jeopardized by the extension granted. The payment in installments neither precludes the treasury from asserting its mortgage rights nor puts on hold legal interest for late payment. A grand ducal decree will be released soon and provide further guidance on the topic.
- Extension of the cooperation between the Luxembourg tax authorities and the financial and insurance regulators (new Article 16bis, 16ter, 17bis and 17ter of the Law of 19 December 2008): Inter-administration and judicial cooperation is reinforced to enable tax authorities to exchange information with the Luxembourg financial regulator Commission de Surveillance du Secteur Financier (CSSF) and the Luxembourg insurance regulator Commissariat aux Assurances.
- Tax secrecy violation offense extended to Luxembourg tax authorities' contractors and subcontractors (new §22bis AO): The existing sanctions applicable to tax authorities' agents for disclosing information covered by tax secrecy should be extended to contractors and subcontractors of the Luxembourg tax authorities to the extent subcontractors of the Luxembourg tax authorities delegate some computer tasks to the Centre des Technologies de l'Information de l'Etat (CTIE) and its subcontractors.
The AO is an old piece of Luxembourg legislation that required an in-depth revamp and a repeal of certain obsolete provisions. The Bill brings welcome amendments and clarifications, as it will harmonize and modernize the general procedure applicable to taxpayers, especially with respect to APAs, MAPs and electronic documentation. Further guidance is expected regarding TP documentation requirements and the possibility of paying tax claims in installments in certain circumstances.
1 In principle, all government and Parliament bills must go through two successive votes by the Chamber on the law as a whole. There must be an interval of at least three months between the two votes. However, Parliament may exempt itself from the second vote to the extent that the Council of State agrees with this exemption, which is most often the case in practice
2 OECD (2017), Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing, Paris, https://doi.org/10.1787/mtc_cond-2017-en. Commentaries 52