New tax procedure in Luxembourg
Within the framework of the law of 19 December 2008 intended to improve inter-judicial and administrative cooperation and enhance the means available to state authorities, a new tax procedure called “self-assessment taxation” (imposition suivant déclaration) has been introduced by paragraph 100a of article 19 of the General Tax Law (Abgabenordnung or AO).
According to the comments of the related bill, the main objective is to reduce the backlog accumulated by the the tax authorities (Administration des Contributions Directes or ACD) with respect to the verification of tax returns submitted by taxpayers.
Indeed, it became clear that the tax procedure needed to be sped up and streamlined. This need is becoming increasingly urgent as the number of taxpayers is constantly rising. For example, the number of companies grew by more than 40% during the last five years, to reach 80,325 in 2009. The number of SOPARFIs registered with the bureau d’imposition Sociétés 6 has tripled over the same period.
The new procedure is therefore faster and less complex. It deals with taxation in direct taxes matters. The new procedure is intended to complement the old system rather than replace it.
The previous procedure
As a reminder, the previous procedure was as follows:
- The taxpayer submits a tax return to the ACD;
- The ACD verifies said tax return;
- Following verification, a tax assessment is issued;
- Taxpayers, who do not agree with the assessment, can lodge a claim within 3 months of notification thereof;
- Without such a claim, the tax assessment becomes final (unless new facts should come to light);
- Should new facts emerge, the ACD is entitled to replace the notice issued with a new notice; this is possible within a period of 5 years.
The current procedure
The current procedure gives the tax office the option of setting the tax amount by only taking into account the tax return submitted subject to subsequent verification, without having to state the reasons for this means of taxation.
Thus, the provisional notice of assessment issued only becomes final after 5 years, unless, during this 5-year period, the ACD examines the dossier and issues a new notice of assessment.
The result is that the new procedure inevitably involves situations in which the tax actually due differs from the tax temporarily payable (which could be either favourable or unfavourable for the taxpayer). Where a surplus balance is payable to the taxpayer, said amount will be reimbursed without interest. Where the taxpayer has not paid sufficient tax, the taxpayer will have to pay the outstanding balance to the tax authorities without being liable for late-payment interest. This is how the law is interpreted. As a matter of fact, the legislator did not follow the Council of State’s (Conseil d’Etat) recommendations to add late-payment interest to the tax refunds carried out by the taxpayer or the tax authorities, as applicable.
To begin with, this new procedure is being applied to joint-stock companies. It has been in place since 1 February 2010.
Lastly, the tax office’s decision to use the “self-assessment taxation” system is explicitly stated in the tax assessment issued to the companies concerned. The following shall appear on the notice of assessment: “l’imposition suivant déclaration (§100a AO) sous réserve d’un contrôle ultérieur” (self-assessment taxation (article 100a of the AO) subject to subsequent verification).
Alex Pham, alex.pham@sgg.lu
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