LUXEMBOURG Law and Practice Contributed by: Oliver R. Hoor and Fanny Addouda, ATOZ Tax Advisers
14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing Luxembourg does not recognise the rule of precedent so the Luxembourg courts are not bound by decisions handed down in other cases, even when these cases are very similar. Still, decisions of the director of the tax authorities very often make reference to the case law of the administrative courts, which is generally followed by the tax authorities. 14.2 Significant Court Rulings Besides the rulings of the administrative courts regarding hidden dividend distributions and hidden capital contributions, which are very numerous, the Luxembourg case law in transfer pricing matters is rather limited. There is some case law on the compu - tation of interest rates for financing activities, but its relevance is limited since these rulings concern tax years prior to 2015 (before Luxembourg introduced its transfer pricing legislation). There is, however, some recent case law on intra-group financing transactions and the qualification (as debt versus equity) of relat - ed instruments – including, in particular, the following case law regarding the qualification of IFLs. Administrative Court, Case No 50602C, 17 April 2025 – IFL On 17 April 2025, the Luxembourg Administrative Court (Case No 50602C) ruled on the tax treatment of IFLs and the status of a foreign PE. The case concerned a Luxembourg company that financed the acquisition of two foreign participations held via a Malaysian PE through two IFLs granted by an indirect shareholder. As the Malaysian PE has been disregarded (the com - pany could not evidence a real presence in Malaysia), the participations and loans have been allocated for Luxembourg tax purposes to the Luxembourg com - pany. The company had treated the loans as debt for tax and accounting purposes, including recognising imputed interest deductions. The LTA challenged this treatment, arguing that the loans lacked the essen - tial characteristics of debt, such as a fixed repayment schedule and genuine economic risk transfer, and should be reclassified as equity contributions. In their decisions, the tribunal and the court applied the substance-over-form principle and appear to have
ments. They often also request information related to substance. Once the audit is completed, the tax authorities will release a tax assessment (or a revised tax assessment if the taxpayer has already been taxed automatically based on its initial tax return, as is the case for com - panies in principle). If the tax assessment differs from the position taken in the tax return, the tax authorities will first have to send a notification to the taxpayer explaining that they will deviate from the position taken in the tax returns and briefly explain the ration - ale behind this deviation. The taxpayer is able to take a position on the envisaged deviation. Then, the tax assessment is released. The taxpayer then has three months to challenge the tax assessment before the director of the direct tax authorities. Even if the tax assessment is challenged, the tax fixed in the tax assessment must be paid. The director can then issue a new tax assessment, reject the claim of the taxpayer or even remain silent. If the director remains silent, the appeal is deemed to be rejected after six months. As soon as the appeal is rejected or deemed to be rejected, the taxpayer has the pos - sibility to appeal against the decision (or the initial tax assessment itself in case of deemed decision) of the director of the tax authorities before the Administrative Tribunal (first instance in direct tax matters). The tax - payer can appeal against the decision of the Tribunal before the Administrative Court (second instance in direct tax matters) within 40 days following the noti - fication of the decision. The decision of the Adminis - trative Court is final and cannot be appealed, as the Administrative Court is the highest instance in direct tax matters. Draft Law No 8186 aims to simplify and modernise the rules governing the direct tax procedure in Lux - embourg and amends, among other things, some aspects of the formal conditions to challenge tax assessments.
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