In March, a draft law was presented to parliament to amend the Luxembourg General Tax Law and introduce new procedures that are applicable to taxpayers. The bill seeks to simplify and modernise rules governing the tax procedure in Luxembourg, some of which haven’t been updated since the 1930s and are widely viewed as obsolete.
However, some observers have warned the draft law undermines taxpayer rights. In a written statement dated 9 June, Luxembourg’s Chamber of Commerce said that while it welcomed attempts to simplify and modernise Luxembourg’s tax procedure, it refused to endorse the draft bill in its current form because it did not strengthen taxpayer rights; on the contrary, it weakens them.
Georges Simon, founding partner at Simon Law, was equally critical of the draft bill, describing it as disappointing. “The problem is that most of the provisions in the bill of law do not favour the taxpayers and instead place a greater burden on them.”
Simon said that provisions limiting the amount of time during which a taxpayer can lodge an appeal when the tax director does not respond to a tax objection should be removed or made less harsh. “We have this rule in the bill of law stating that if you don't get an answer from the tax director within six months then you only have 12 months thereafter to go before the tribunal. If you don't go to the tribunal within this 12-month deadline, you lose your rights to challenge the tax assessment.”
Simon said the risk of this new provision is that the tax director will no longer feel obliged to provide its analysis when the taxpayer challenges its tax assessments. “Such a second review by the tax director is, however, considered a very important step in Luxembourg tax procedure as it notably allows the taxpayers to assess at a pre-litigation and administrative level, if they should bring their case to the administrative tribunal.”
Apply the ABC principle
A judge who has reviewed several cases brought forward to Luxembourg’s administrative court says one should exercise caution when dealing with the tax authorities. Speaking at a British Chamber of Commerce for Luxembourg event last month, Serge Schroeder, first judge at the Administrative Court of Luxembourg, said counsels should be careful about how they word the power of attorney statement when introducing an objection on behalf of a taxpayer. Schroeder advised attendees to apply the ABC principle “always be careful”.
“It must be correctly worded to show that the taxpayer has given the mandate prior to the introduction of the objection. We currently have plenty of pending cases where the tax administration raises arguments on the wording of the power of attorney and the power of the physical person who signed the objection.”
Schroeder supported a recent order from the president of the tribunal allowing for provisional relief from tax payment in cases where the amount of tax at stake is significant and the director remains silent. Other judgments emphasise the importance of taxpayer rights to be heard when new factual elements are presented for consideration, Schroeder said.
Prior to publication, Delano asked the finance ministry if they would like to comment or participate in an interview on tax audit procedures but they declined to comment.