Luxembourg Tax Alert 2020-08
Luxembourg Tax Alert 2020-08
More time for tax disputes!
In response to the Covid-19 crisis, the Luxembourg government has taken certain measures to help support the local economy. Notably, tax procedures have been considered during this time.
As a reminder, taxpayers can file a request online to cancel advance tax payments for the first and second quarter. Certain taxpayers may also request a payment extension of four months without any late-payment interest. On 7 May 2020, a motion was introduced in the parliament to reduce the late-payment interest rate from currently 0.6 percent per month to 0.3 percent per month (i.e. 3.6 percent per year).
Deadlines for income and business tax compliance have already been extended until 30 June 2020. This is good news for taxpayers as they have more time to input their returns. On the output side, tax assessments can now be appealed for a longer period. On the downside, it is important to mention that the administration gets more time to take enforcement measures, if taxes are not paid in due time. We will analyze these new measures adopted on 7 May 2020 in the so-called “Loi portant adaptation de certains délais en matière fiscale, financière et budgétaire dans le contexte de l’état de crise”.
The deadlines for filing administrative appeals are suspended from 18 March until 30 June 2020. The clock is stopped.
What does this mean in practice?
- In the extreme case, taxpayers who received a tax assessment dated 13 December 2019 now have until 1 July 2020 (instead of 18 March 2020) to lodge administrative appeals.
- For tax assessments dated 13 January 2020, for example, the new appeal deadline should be 30 July 2020.
- For tax assessments issued any time between 13 March and 25 June 2020, the three-month deadline is paused: it should start on 1 July 2020 and end three months later on 1 October 2020.
If taxpayers missed deadlines for administrative appeals in spite of exercising all due care, they can still request a re-establishment of their rights.
According to a decree from 25 March 2020, the deadlines for judicial appeals are also suspended during the declared state of crisis which officially started on 18 March 2020 and should last three months.
In principle, judicial claims in direct tax matters must be lodged with the administrative tribunal within three months after notification of a decision by the tax director on the administrative appeal. After six months without any decision by the director on the complaint or on a request for a tax waiver, taxpayers can directly lodge a claim against the initial tax assessment.
The deadlines for bringing cases to the administrative tribunal, the court of first instance in direct tax matters, will be postponed as follows:
- Deadlines for judicial claims expiring during the state of crisis will be postponed by two months from the end of the state of crisis.
- Deadlines for judicial claims expiring in the month following the end of the state of crisis will be postponed by one month from their expiry date.
Statute of limitations
With the new law adopted on 7 May 2020, the Luxembourg tax administration will have one additional year to assess, modify, collect and, if necessary, enforce direct taxes.
In principle, this so-called statute of limitations period is 5 years. For the tax year 2015, for example, this period ends on 31 December 2020 at midnight, provided that it was not suspended (e.g. during tax litigation) or interrupted (e.g. by enforcement measures).
The statute of limitations period can be extended to 10 years, if the taxpayer did not file any tax return for the given year or if the tax return was not complete or not accurate. Thus, the taxation for the year 2010 could still be open until 31 December 2020 in these two cases.
According to the new law, the statute of limitations period that would expire on 31 December 2020 will now be extended by one year to 31 December 2021.
The Luxembourg tax administration is in a privileged situation in regard to the enforcement of taxes. The tax administration can create its own enforcement title by issuing a tax assessment and has a large arsenal of enforcement measures.
Established by law, the tax administration holds a lien on all movable property of a taxpayer. This may include, for example, a wage garnishment or seizure of accounts. In addition, the tax administration holds a legal mortgage on immovable property of a taxpayer that is situated in Luxembourg. The lien is valid for five years, while the mortgage loses its effect after three years. For the taxation year 2015, for example, the lien would end on 31 December 2020 and the mortgage would expire on 31 December 2018.
According to the new law, any liens and mortgages whose effects cease before 31 December 2020 are extended to 31 December 2021.
Taxpayers should review the Luxembourg tax assessments which they received in the last five months. Taxpayers have more time to lodge administrative and judicial appeals against tax assessments dated any time between 13 December and 25 June 2020. They should use the extended deadlines wisely and consider the benefits and risks of entering into a tax dispute.
As a result of the COVID-19 crisis, tax administrations worldwide will most likely apply their interpretation of tax legislation vigorously. At the same time, taxpayers will have to protect themselves in this time of crisis. More tax disputes may rise.
KPMG Luxembourg has the experience and expertise to solve Luxembourg and international tax disputes. We have successfully assisted clients in all stages of the tax dispute continuum:
- Discussions with the Luxembourg direct tax authorities, invoking the rights of taxpayers in the tax procedures and, if required, lodging administrative appeals;
- Representation in tax litigation before the Luxembourg administrative tribunal in direct tax matters;
- Managing and responding to requests for exchange of tax information;
- Requesting competent tax authorities to initiate mutual agreement procedures and, if required, submitting unresolved cases to arbitration to solve tax treaty disputes about double taxation, mostly triggered by transfer pricing issues, dual residence or profit attribution to permanent establishments;
- Assistance during local or joint tax audits, development of audit strategies and handling subsequent proceedings;
- Individual and corporate defense in tax-related liability proceedings.
Senior Manager, Head of Tax Dispute Resolution
KPMG Luxembourg, Société coopérative
39, Avenue John F. Kennedy
Phone: +352 22 5151 5606
Mobile: +352 621 87 5606
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