LUXEMBOURG Law and Practice Contributed by: Oliver R Hoor and Fanny Addouda, ATOZ Tax Advisers
the taxpayer. Besides the statute of limitations (of five years in principle), there is no timeline for performing a tax audit and the tax authori - ties set the deadline for the taxpayer to provide the information requested (generally two to four weeks). The taxpayer has the obligation to pro - vide the information requested and must answer any additional questions the tax authorities may ask during the audit process. In practice, the tax authorities request the transfer pricing documentation supporting the intra-group trans - actions performed by the taxpayer as well as the related agreements. They often also request information related to substance. Once the audit is completed, the tax authori - ties will release a tax assessment (or a revised tax assessment if the taxpayer has already been taxed automatically based on its tax return in a first place, as it is the case for companies, in principle). If the tax assessment differs from the position taken in the tax return, the tax authori - ties 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 rationale behind this deviation. The taxpayer is able to take position on the envis - aged deviation. Then, the tax assessment is released. The taxpayer then has three months to challenge the tax assessment before the Direc - tor of the direct tax authorities. Even though the tax assessment is challenged, the tax fixed in the tax assessment must be paid. The Director can then either 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 possibility to appeal against the decision (or deemed decision) of the Director of the tax authorities before the Administrative Tribunal (first instance in direct tax matters). The
taxpayer can appeal against the decision of the Administrative Court (second instance in direct tax matters) within 40 days following the notifica - tion 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 modern - ise the rules governing the direct tax procedure in Luxembourg and amends, among others, some aspects of the formal conditions to chal - lenge tax assessments. 14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing Luxembourg does not recognise the rule of prec - edent 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 adminis - trative 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 hid - den capital contributions which are very numer - ous, the Luxembourg case law in transfer pricing matters is rather limited. There is some case law on the computation of interest rates on financing activities, but their relevance is reduced since these rulings concern tax years prior to 2015, so before Luxembourg introduced its transfer pric - ing legislation. There is, however, some recent case law on intra-group financing transactions and the qualification (as debt v equity) of the related instruments, including, in particular, one
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