Luxembourg Bill of Law n° 8186 Simplification and clarification of some tax matters

 

Background

The Bill of Law 8186 (“the Bill”), presented on March 28th, 2023, introduces certain changes to the General Tax Law (Abgabenordnung, “AO”) that help clarifying and modernizing some procedural aspects in tax matters, together with Transfer Pricing (“TP”) matters. Further guidance in the above-mentioned matters is expected in the envisaged Grand Ducal Regulations.

Takeaways

The most relevant amendments from the Bill are listed below:

 

  • Advance pricing agreement (“APA”) procedure (New §29C AO): New bilateral and multilateral agreement procedure in TP matters pursuant to the Double Tax Treaties (“DTT”) concluded by Luxembourg, for which the Luxembourg tax authorities would set an administrative fee ranging between EUR 10,000 – 20,000 depending on the complexity of the file and request.
  • Mutual agreement procedure (“MAP”) and arbitration decision to issue, withdraw, or amend a tax assessment in line with DTT provisions (§96 AO).
  • TP documentation requirements (§171 al 4 AO): New supporting TP documentation requirements for associated entities performing related party transactions to be in line with the international OECD BEPS plan (Action 13).
  • Alignment of the procedure of appeal to the director of the Luxembourg tax authorities (i.e., to challenge a tax assessment): the tax claim will follow the same conditions as the claim to the Administrative tribunal (§249 AO). It does not require the appointment of a lawyer, but it requires a written request duly signed by the taxpayer (or its representative) including specific and exhaustive information in order to be declared admissible.
  • As per new Article 8 (3) (5) of the Law of 7 November 1996, a 12-month deadline has been set to appeal to the Administrative tribunal after the implicit negative answer of the director of the Luxembourg tax authorities (i.e., 6 month silence after filing a tax claim). The deadline could be extended a further 6 months if the Director of the Luxembourg tax authorities decides to pursue an investigation.
  • Accounting obligations (new §160 al 1a AO and new §171 al 2 AO): upon tax authorities’ request, all documentation and information will need to be transmitted in a digital and readable format (i.e., copy that conforms with the original); and non-published Annual Accounts in RCS will not be relied upon by the Luxembourg tax authorities (i.e., not enforceable).
  • Mitigation measures against automatic tax assessments (§217 AO; §94 al 1 AO; and §232 al 1a AO), such as not being entitled to rely on simple tax adjustment or the possibility to challenge taxes due if the tax assessment exceeds by 10% the actual income/wealth subject to tax.
  • Periodic repayment of the tax debt (new Article 12a of the Law of November 27th 1993): payments of taxes due in installments will be possible upon taxpayers’ demand when the collection of taxes causes considerable difficulties to the taxpayer, and provided it does not put at risk the treasury debt collection. Interest penalties for late payments are still applicable.
  • Increased cooperation between the Luxembourg Tax Authorities and financial and insurance regulators (CSSF and Commissariat aux Assurances) to ensure smoother exchange of information (new Art. 16bis; 16ter; 17bis; and 17ter of the Law of 19 December 2008).
  • Tax secrecy violation sanctions extended to contractors and subcontractors of the Luxembourg tax authorities (new §22bis AO) for illegal tax information disclosure.

Entry into force

The amendments will be applicable after the publication of the Bill in the Memorial (Journal Officiel), though certain changes will be applicable as of January 1st 2024 or fiscal year 2024.

Conclusion

The Bill introduces some modernizing changes for certain procedures applicable to taxpayers. Further clarification is expected, mainly for the possibility of paying tax debt in installments and the TP matters. Although there is still room for further guidance and improvement, the General Tax Law has been rightly reviewed and amended overcoming some outdated provisions.