The Budget Laws introduced a new paragraph (§29a) in the General Tax Law, the Abgabenordnung, detailing the TCL procedure applicable from now on, both for tax clearance letters regarding general tax aspects and transfer pricing matters. Paragraph §29a has also been completed by a Grand-Ducal Decree (hereafter the "GDD") dated December 23rd 2014.
As from January 1st 2015, TCLs (that provide for the confirmation of the correct application of tax laws and do not grant moderation or an exemption of the tax due, in accordance with article 101 of the Constitution) filed with the Luxembourg Tax Authorities (hereafter the "LTA") are valid for a period of no more than five years.
The LTA is bound by the TCL, unless it turns out:
i) that the situation and operations described in the TCL were incorrect or incomplete,
ii) that the situation and operations finally implemented by the taxpayer differ from the ones on which the TCL was based, or
iii) that the TCL stops being compliant with domestic, European or international tax laws.
The GDD specifies that, as was previously the case, the TCL needs to be addressed to the Tax Inspector of the relevant tax office or to the Head of the LTA in case no or several tax offices are concerned. The TCL needs to include the following information:
- a precise designation of the taxpayer requesting the TCL , the parties involved as well as their respective activities;
- a detailed description of the seriously envisaged operations that have not yet produced their effects;
- a detailed analysis of the legal issues as well as a motivated opinion on the tax treatment from the taxpayer; and
- a confirmation that all the indications and facts given by the taxpayer are complete and accurate.
The TCLs concerning corporate tax matters are now transmitted to a newly created Commission des décisions anticipées (hereafter the "TCL Commission"), whose aim is to assist the tax offices in the uniform application and execution of the tax law.
The TCL Commission can give the possibility to the taxpayer to orally present his case to the Commission, in case it is deemed necessary. Once a decision is reached, it is transmitted by the TCL Commission to the relevant Tax Inspector for execution.
"All TCLs will now be published anonymously and in a summarised way in the annual report of the LTA."
It is also to be noted that all TCLs introduced prior to January 1st 2015 that are currently still pending approval will be subject to the same procedure described above.
All TCLs concerning the taxes levied on business income that are introduced starting January 1st 2015 will be subject to a fee ranging from EUR 3,000 to EUR 10,000, depending on the complexity of the TCL, as decided by the Head of the LTA upon receipt of the request. The fee, which is payable within one month, is not refundable and the TCL Commission will start reviewing the request only once payment is received.
The question whether the above fee should be deductible for Luxembourg tax purposes emerged during the discussions around the draft law and it seems that based on the final wording, the fee should be considered as tax deductible for Luxembourg tax purposes, given that its deductibility is not expressly disallowed.
While the formalisation of the TCL procedure is more than welcome, uncertainties still remain with regard to certain aspects of the GDD and especially concerning the exact scope of the restriction regarding operations having not yet produced their effects.