Luxembourg: A closer look at tax assessments
Xavier Sotillos Jaime and Mariana Cohen Margiotta of Deloitte provide an overview of the Grand Duchy’s direct tax framework.
In recent years, Luxembourg has recorded a continued increase in the number of claims filed by corporate taxpayers with respect to direct tax decisions issued by the Luxembourg tax authorities (LTA). Luxembourg’s declarative tax system and swift-paced framework for the assessment of tax returns makes the Grand Duchy’s tax audit process distinct from that of other countries.
This article highlights the stages and time frames of Luxembourg’s direct corporate taxation framework.
Tax returns: Filing and assessment
Luxembourg’s income tax law provides that tax returns should include the amount of income, together with all other information necessary to determine the amount of taxes to be paid. The LTA then issues a tax assessment of the amount of tax payable on income or wealth, or the amount of municipal business tax due.
In principle, tax assessments are issued automatically by the Tax Office section (bureaux d'imposition) of the LTA, based solely on the information provided by the taxpayer in their tax return, and generally within 30 days following the filing process.
A five-year limitation period applies for the LTA to assess, modify, collect, and, if necessary, enforce direct taxes. Therefore, the automated tax assessment may be revisited by the Tax Office during this statute of limitations period before issuing a final assessment.
The Tax Office review process: Information requests and inspections
The Tax Office has the power to request information and additional proof to support the accuracy and completeness of the filed tax return.
Prior to issuing its assessment, the Tax Office should notify the taxpayer in case it intends to disagree with the filed tax return and it should allow the taxpayer to make additional observations/clarifications. The time frame for this exchange is not explicitly stated in the legislative framework. In practice, this period is rather limited—no longer than two or three weeks—and, therefore, the final assessment issued by LTA closely follows the initial notification.
Inspections by the LTA: Service de révision and on-site tax audits
The Tax Office inspector has the power to conduct a tax audit on site or instruct the service de révision to do so. This process involves activities such as the evaluation of accounts/accounting documents and legal agreements, as well as the preparation of audit reports proposing the result for the tax positions assessed.
Burden of proof: Obligations of the taxpayer and the LTA
The taxpayer has to justify and provide evidence to support items reducing their tax base and/or facts releasing them from a tax obligation. Evidence and supporting files for items such as related party transactions and controlled foreign companies should be available upon the LTA’s request.
The burden of proof then falls on the LTA to provide sufficient facts warranting an increase in tax liability.
Contesting a decision issued by the LTA: Pre-litigation and litigation phases
Administrative (pre-litigation) phase
Taxpayers can file an appeal against a decision by the LTA, depending on:
The taxpayer’s understanding of the grounds for its claim;
The nature of the decision that is being contested; and
The administrative rights that the taxpayer wishes to have available in case the LTA issues a negative decision or fails to respond. Further guidance is provided in Luxembourg’s general tax law (Abgabenordnung).
The time frame for filing an appeal is three months as from the reception of the tax assessment, the only exception being informal appeals (recours gracieux), for which the filing deadline is the end of the year following the year of events relating to the claim.
Payment of taxes due
Luxembourg’s procedural framework does not contemplate a payment suspension on account of a claim being filed by the taxpayer. Taxes due become payable in the month following issuance of the LTA’s assessment. However, taxpayers can request a payment suspension from the LTA. In this case, the taxpayer should be in a position to explain their reasoning and to file the relevant appeal prior to requesting a payment suspension.
Litigation phase: The administrative courts
After the LTA issues its decision or fails to respond within six months, the taxpayer may file a judicial claim before the Administrative Tribunal. Therefore, filing an objection with the director of the LTA is a mandatory preliminary step before filing an appeal before the administrative courts.
The Administrative Tribunal is the court of first instance for a taxpayer’s claim. The taxpayer or the LTA may then appeal the judgment of the Administrative Tribunal to the Administrative Court.
Luxembourg taxpayers would be wise to discern that timing is of essence when addressing requests and tax review processes initiated by the LTA.
An expanded version of this article can be found at Deloitte Luxembourg's website.
Xavier Sotillos Jaime
Mariana Cohen Margiotta