New Circular regarding the mutual agreement procedure provided by double tax treaties signed by Luxembourg

On 11 March, the Luxembourg Tax Authorities (LTA) issued the circular L.G. – conv. D. I. n° 60 (Circular) regarding the mutual agreement procedure (MAP) provided by double tax treaties (DTTs) signed by Luxembourg. This Circular replaces the circular L.G. – conv. D. I. n°60 issued on 28 August 2017. 

The MAP is a procedure which aims at eliminating legal and economic double taxation, without creating situations of double non-taxation. The MAP is based on specific provisions of DTTs which are generally aligned with article 25 of the OECD Model Tax Convention.

In short, the main formalities of implementation of the MAP are as follows:

Access to the MAP: access to the MAP is intended to have a very broad application and will only be refused (i) when the deadline to introduce the MAP has passed or (ii) when the criterion of residence is not met in the event where the taxpayer must submit his case to the competent authority of the Contracting State of which he is a resident. Moreover, the Circular gives clarifications as regards specific cases (e.g., a taxpayer has access to the MAP even if the double taxation arises from transfer pricing or where the MAP request was initiated as a result of the application of anti-abuse rules under domestic law or under an applicable DTT);

Competent authority: in Luxembourg, the competent authority to receive the MAP requests is the Ministry of Finance. However, in practice, these requests are addressed to the relevant office at the directorate of the direct tax authorities.

Information and documents: the Circular details the list of documents to be attached to the MAP request which include among others the identification of the taxpayer(s) concerned, the relevant tax years, the DTT concerned, description of the relevant facts etc.

Deadline: a request for a MAP has to be submitted with the LTA within a certain timeframe (generally three years) from the first notification of the measure which results or will result in taxation contrary to a DTT. The deadline may vary from a DTT to another.  The Circular confirms that a taxpayer is allowed to submit a MAP request where a procedure initiated under domestic law is still to be decided before the competent authorities initiate discussions in order to resolve the case presented in the context of a MAP procedure. This protective MAP request ensures that the submission deadline is preserved;

Costs of the procedure: the MAP is free of charge for the taxpayer;

Conditions for the implementation of a solution suggested to the taxpayer: the implementation of such solution will be subject to the taxpayer‘s approval and the condition that the taxpayer waives all legal remedies, both in Luxembourg and abroad, in relation to the matter settled in the MAP;

Interest and penalties: the Circular stresses out that interest and penalties are outside the scope of the MAP. However, when taxation is cancelled in Luxembourg or when the taxes due are reduced under the MAP, related interest and penalties are also cancelled or reduced proportionally when they are directly linked.

Relationship between MAPs provided by DTTs and procedures falling within the scope of the law of 20 December 2019 establishing a tax dispute settlement mechanism (Law): submitting a claim within the meaning of Article 3 of the Law puts an end to an ongoing MAP initiated under a DTT. Procedures falling within the scope of the Law are excluded from the scope of application of the Circular.

More details may be found here.

In conclusion, even though the MAP is a time-consuming procedure it remains efficient. Our tax team is at your disposal for any advice or assistance.

Frédéric Feyten, Managing Partner | Avocat

Matthijs Haarsma, Senior Associate

Géraldine Pechine, Senior Associate

Arnaud Marquet, Associate

Delphine Danhoui, Professional Support Lawyer