In the wake of the “Luxleaks” affair, the Luxembourg practice of Advance Tax Agreements (hereafter “ATAs”) came under severe scrutiny last year, and the past months have seen quite a few interesting developments in this field.
The publication of a substantial number of “controversial” ATAs on 5 November and 9 December 2014 happened at about the same time as the proposal, the vote (on 19 December 2015), and the publication (on 24 December 2014) of a law inserting a new Article 29a in the General Tax Law of 22 May 1931, which took effect from 1 January 2015.
The purpose of the new provision, as further specified by a Grand-ducal regulation dated 23 December 2014 (i.e. prior to the publication of the new law in the Official Gazette), is to create a legal framework for the Advance Tax Agreements, which up till now have been issued by the tax administration with no legal basis beyond the principles of sound administration put forward by the Luxembourg courts in several previous milestone judgments.
While, until then, the practice of ATAs had been rather informal, from 1 January 2015 a formal procedure has been in place and, for more than 12 months since the creation of the “ATA Commission” under the direction of the Direct Tax Administration, it is now possible to set out some guidelines derived from the daily application of the new procedure.
The key features of the new procedure are: (i) legal certainty, confirming the principles set forth by pre-existing case-law; and (ii) global transparency, anticipating the EU initiatives of 2015 in this field, while, at the same time, securing uniformity of the application of tax law and reducing the annual number of decisions (according to the 2014 Annual Report of the Luxembourg Revenue Services, 715 ATA’s were issued in 2014 with the 2015 figures yet to be made available).
The binding effect of a formal ATA – be it for a maximum period of 5 years - is expressly confirmed by the Grand-ducal regulation, unless: (i) the description of the situation or transactions in an ATA is incomplete or inaccurate; (ii) the situation or the transactions realized subsequently differ from those described in the ATA; or (iii) the decision is not or no longer in line with domestic, European or international law.
An ATA request may be filed by a company or an individual, and in the former case an administrative fee ranging from between EUR 3,000 and EUR 10,000 will be fixed by the director of the direct tax administration service. In principle, although absent from any legal or regulatory provision, a decision will be issued within three months following the payment of the administrative fee.
The decision of the tax authorities may be positive, negative, or a refusal. It is assumed, and has been verbally confirmed, that a refusal is not considered as a negative decision, but as a decision not to take a position on the particular ATA request.
The annual report of the direct tax authorities (starting with the 2015 Annual Report) will include an anonymised summary of the ATAs issued during the year. The 2015 Annual Report will be published in the course of 2016. Under the Transparency Package designed by the EU Council, an automatic exchange of “cross-border” ATAs within the EU is in the process of being implemented in Luxembourg, and practical steps have already been taken in this regard.
Last but not least, in an as yet unpublished decision of 16 December 2015, the Luxembourg Administrative Tribunal formally and clearly confirmed the binding effect of an ATA issued without any reservation, condition, or time limit, irrespective of the material content of the decision.
Although an appeal has been lodged against this decision (a final decision by the Cour Administrative is expected in the course of 2016), this decision clearly recognizes the principle of legal certainty and therefore is to be welcomed.
For more information, please contact:
Jean-Luc Dascotte – Partner (jean-luc.dascotte@tiberghien.com)
Jonathan Norman – Senior Associate (jonathan.norman@tiberghien.lu)
Tuesday, 19 April 2016