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Advanced Tax Clearance practice formalised
The LuxLeaks affair has brought Luxembourg tax rulings or Advance Tax Clearances to the centre stage. However, procedures around the filing of these documents have already been under review. Taxand Luxembourg presents new modifications to the Advanced Tax Clearance (ATC) process.
In mid-October, a draft law announced a new set of measures for the future (so-called Zukunftspak), which evoked, among many other issues, the subject of tax rulings in Luxembourg. The draft law has now become law and a Grand-Ducal Regulation provides some further insight into these changes. From 1 January 2015, the process of filing advance tax clearances has seen some modifications.
Formal requirements applicable to the filing of ATCs
The formal requirements are more or less a formalisation of the current practice. The request has to include the following information:
- Detailed description of the taxpayer requesting the ATC (name, address, tax number), of the other parties involved, together with a detailed description of their activities
- Detailed description of the contemplated operation(s)
- Detailed and motivated analysis of the related legal issues
- Confirmation that the information provided to analyse the request is complete and accurate
If the ATC request deals with company taxation issues, the request will first be submitted for opinion to the ATC Commission. The Commission will be able to hear the requesting taxpayer to obtain additional information, if needed. It is up to the ATC Commission to decide whether such a meeting is necessary or not. The ATC Commission will then provide its opinion to the tax inspector in charge, who will take the final decision. Even though the decision power remains with the tax inspector, it can be expected that the opinion of the Commission will be followed in practice, this because the aim of this Commission is also to make sure that the positions taken by the tax authorities are harmonised.
While the new ATC procedure only applies to ATC requests filed as from 1 January 2015, ATC requests filed before 2015 and which are in the process of being reviewed by the tax authorities will also be subject to a review by the new ATC committee based on the new rules.
Fee for handling of ATCs
While no fee was due to the tax authorities in the past, a fee will apply to all ATC requests which deal with company taxation issues in future. The amount of the fee will be determined by the tax authorities upon receipt of the ATC request and will range between EUR 3,000 and EUR 10,000, depending on the complexity of the request and the amount of work required. The fee will be payable within one month.
Legal force & validity of ATCs
The ATC is valid for a time period for a maximum 5 tax years and will have a binding effect on the tax authorities, except in the following situations:
- The situation/operations described are not accurate
- The situation/operations performed differ from the ones described in the ATC request
- It appears that the ATC is no longer in line with Luxembourg or international tax law
While it is not specifically stated in the text of the law, the commentaries to the law make it clear that it is not possible to appeal against an ATC.
ATCs will be published in synthetic and anonymised form in the annual report of the direct tax authorities.
Quality tax advice, globally
This is not a sweeping reform of the tax ruling system. Most of the changes introduced are simply a ‘formalisation’ of practices already applied. That said, the introduction of an ATC Commission could render the process more efficient in the long run. By acting as a filtering mechanism, the ATC Commission delivers a preliminary opinion to the tax inspector who then should be able to act more quickly. Furthermore, the taxpayer or representative/advisor may need to provide additional information to the ATC Commission so that it may provide a complete and well-informed opinion to the tax inspector. All in all, there will be increased visibility in terms of the timing of the tax ruling process.
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