An EU directive was transposed into Luxembourg domestic tax law in December 2019. The directive concerns tax dispute resolution mechanisms in an effort to provide legal certainty as well as to achieve fairer taxation in the EU.
Read the Luxembourg law of 20 December 2019 (French)
Historically, domestic tax law remedies were considered to be the first approach to resolve international tax or transfer pricing disputes. Taxpayers often initiated mutual agreement procedures (MAP) to resolve a dispute and to establish certainty. The MAP essentially provided an amicable government-to-government dispute resolution mechanism (procédure amiable) with the competent authorities endeavoring to resolve tax-treaty related disputes on a mutually agreed basis.
Now, more than 135 countries have implemented recommendations from the base erosion and profit shifting (BEPS) project that aims to improve this process. As a consequence, the BEPS Multilateral Instrument (MLI) is available. However, the MLI only affects tax treaties that have been concluded with other jurisdictions that in turn have ratified the MLI and that also include that subject treaty in their list of covered tax agreements. Further, there may be reservations made by the contracting states in adopting the MLI.
In contrast to the MLI, the Luxembourg law provides a uniform framework to resolve tax disputes when other EU Member States are involved. Compared to the EU Arbitration Convention, the new framework is seen as being more efficient—particularly with regard to access to the MAP regime, the length of time it takes under this procedure, and the time for an effective conclusion.
The new rules under the Luxembourg law of December 2019 apply to any disputes relating to Luxembourg income tax, withholding tax, business tax, and wealth tax related to tax years from 2018 onwards. Among the benefits are the following:
Read more in a KPMG report: Managing transfer pricing disputes [PDF 774 KB] (November 2019)
The MAP process (with the potential extension into tax arbitration) is seen as being an efficient and effective dispute resolution mechanism. It is particularly suitable to manage transfer pricing disputes when double taxation occurs as a result of an upward adjustment in one EU Member State without any corresponding adjustment in another EU Member State.
Read a December 2019 report prepared by the KPMG member firm in Luxembourg
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