On 11 March 2021, the Luxembourg Tax Administration (“LTA”) published updated guidance on the Mutual Assistance Procedure (“MAP”) in tax matters provided for in double tax conventions signed by Luxembourg. The guidance, which replaces circular L.G.Conv. D.I no 60 of 28 august 2017, describes the implementation of the MAP in Luxembourg.
The MAP is a non-judicial method of eliminating double taxation contained in specific articles of double tax conventions concluded by Luxembourg. The MAP provisions adopted by Luxembourg usually follow article 25 of the Organisation for Cooperation and Economic Development’s Model Tax Convention (“OECD MTC”). The new guidance does not apply to the procedures under the EU’s Arbitration Convention on transfer pricing matters or the law of 20 December 2019 transposing Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the European Union.
Initiating the MAP
A taxpayer may initiate a MAP in Luxembourg, under the applicable double tax treaty when the taxpayer considers that the actions of one or both of the contracting states result or will result for him in taxation not in accordance with the provisions of the applicable double tax treaty. The opening of a MAP request is thus subject to a prior measure which leads either to immediate taxation or may result in the future in taxation with sufficient certainty for the competent tax authorities to determine that there exists a risk of double taxation not in line with said tax treaty. In Luxembourg, such prior measures are, amongst others:
- The notification of a tax assessment in accordance with §§ 100a and 200(1) of the General Tax Law of 22 May 1931 (Abgabenordnung) (“AO”);
- The notification of a tax assessment determining the tax base in accordance with § 213(2) AO;
- A tax audit, which will probably result in a taxation not in line with the double tax treaty.
A MAP may also be requested when (i) the interpretation or application of a double tax treaty raises doubts or difficulties or (ii) the competent authorities wish to discuss and resolve cases of double taxation not covered by the double tax treaty.
In order to initiate the MAP, the taxpayer must be resident for tax purposes in Luxembourg and the request must be filed within 3 years of the first notification of the measure which results or will result in taxation not in accordance with the provision of the double tax treaty. The new circular adds that if the taxpayer wishes to wait for the outcome of an internal procedure (administrative or judicial appeal), he may introduce a “protective” MAP in order to ensure that the MAP is initiated within the 3 year deadline. In such a case, the taxpayer should request that the MAP be held on until the LTA is notified.
The guidance reiterates that the MAP is intended to apply very broadly and may only be refused by the LTA in a limited number of circumstances: (a) where the deadline to introduce a MAP has expired or (b) the taxpayer is not resident in Luxembourg in cases where § 1 of the relevant article in the double tax treaty requires the taxpayer to submit his MAP request to the competent authority of the state in which he is resident for tax purposes.
The new guidance especially confirms the broad scope of the MAP:
- The LTA will not refuse to initiate a MAP on the sole basis that the MAP is requested because the foreign tax authority has invoked the anti-abuse rule contained in the double tax convention or domestic law.
- A multilateral MAP may be initiated provided that each country have concluded double tax conventions, which include a mutual agreement procedure. In those cases, the Luxembourg authorities will coordinate and ensure communication with the other competent authorities.
- The MAP may be initiated for cases concerning double taxation resulting from transfer pricing issues.
- MAP may be initiated to defend the interests of a resident taxpayer’s permanent establishment located in another state that has not signed a double tax convention with Luxembourg. In those cases, the competent Luxembourg authority can delegate to the competent authority in the PE’s jurisdiction to resolve the matter.
The MAP request shall be filed with the Comité de Direction, a division of the Administration des contributions directes (Luxembourg direct tax authority). The MAP request must include certain specific information such as a description of all the relevant facts and an analysis of the issues to be resolved by the MAP.
Implementation of the MAP
Upon receipt of the MAP request, the LTA will examine the request and determine whether it can be accepted. If the LTA accepts the MAP request, it will first try to resolve the matter unilaterally if possible. If so, the LTA will inform the competent tax office, which will carry out the necessary adjustments.
If the issue raised by the taxpayer cannot be resolved unilaterally, the LTA will contact the competent authority of the other contracting state. If the double taxation is attributable to Luxembourg’s position, then the LTA must communicate to the other competent authority a position statement, which addresses the arguments raised by the taxpayer and presents the grounds and motivations for Luxembourg’s position. If, on the other hand, the double taxation is attributable to the other country, the LTA will ask the other competent authority to explain its position. The LTA will endeavour to respond to the other competent authority’s position within 6 months. These position statements will form the basis for the discussion between the competent authorities to resolve the matter. The competent authorities must endeavour to resolve the matter but the MAP does not impose an obligation to resolve the matter unless the relevant double tax treaty provides for a compulsory arbitration process.
Terminating the MAP
When the competent tax authorities reach an agreement, the agreed solution will be communicated to the taxpayer. If the implementation of the solution requires modification of the taxation imposed by Luxembourg, the implementation of the solution will be conditional upon the taxpayer waiving any right to appeal the solution in Luxembourg or abroad. This is also the case if Luxembourg proposed to resolve the MAP unilaterally.
If accepted, the solution will be notified to the competent tax office, which will take the necessary steps to implement the solution. A lower taxation outcome in Luxembourg will be implemented by the tax office regardless of the Luxembourg statute of limitation whereas an increased tax burden may only be imposed, if permitted by the domestic statute of limitations.
Relationship with other procedures and appeals
The new circular provides some clarifications on the relationship of the MAP with other procedures and appeals. First, the circular confirms that the Luxembourg tax authorities cannot refuse to initiate a MAP on the grounds that the taxpayer is currently subject to a tax audit. Further, the circular confirms that a taxpayer may request a MAP while also introducing any administrative or judicial appeals available to him. The two procedures may proceed in parallel and simultaneously. The taxpayer may also introduce a procedure under the European arbitration convention simultaneously to the initiation of the MAP.
Finally, the circular adds that the introduction of an appeal within the meaning of article 3 of the law of 20th December 2019 transposing Directive 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union, will terminate any procedure initiated under the MAP or under another mutual procedure covering the same tax dispute initiated pursuant to a double tax convention.
The new circular is a welcome update of the LTA’s approach to MAPs, confirming its willingness to grant taxpayers access to MAPs and providing more detail on the content of MAP request and the process to resolve issues of double taxation. Your usual BSP contacts are at your disposal to advise and assist in any double taxation cases and the filing of a MAP request with the Luxembourg authorities.