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12.4.4. APAs and Dispute Resolution Mechanisms

Advance Pricing Agreement

A company may request an advance pricing agreement (APA) from the tax authorities on payment of prescribed fee. The APA may be granted for up to five years. APAs can be unilateral, bilateral or multilateral.

Mutual Agreement Procedure

Mutual agreement procedure (MAP) is provided for in most of the bilateral tax treaties concluded by Luxembourg. MAP may be requested when a taxpayer considers that measures taken by one or both Contracting States result in taxation not in accordance with the provisions of an applicable tax treaty. In general, a MAP case must be submitted within three years of the first notification of the measure that resulted in the perceived non-conforming taxation, with the deadline to be interpreted in the least restrictive manner possible for the taxpayer. Where the competent authority of Luxembourg has received a request for MAP, the other competent authority should be informed within four weeks from receipt of the request.

If the MAP request is deemed inadmissible for not meeting the relevant conditions of the applicable treaty, the taxpayer will be informed, along with the reasons for the decision. If the MAP request is deemed admissible, the competent authority of Luxembourg will first determine if the issue can be resolved unilaterally, otherwise, the MAP proceedings will enter the international phase, during which the competent authorities will seek mutual agreement. Mandatory binding arbitration is available, if provided for under the relevant tax treaty.

Interest and penalty disputes are not eligible for MAP as they are not treated by Luxembourg as taxes covered by tax treaties, although when tax is revoked or reduced as a result of MAP, the related interest and penalties, if any, will be adjusted accordingly.

MAP cannot be refused to taxpayers under an audit. Further, MAP requests can take place simultaneously with administrative and judicial appeals and with requests under the EU Arbitration Convention.

On completion of MAP, if the proposed solution provides for a change in taxation in Luxembourg, the same will be implemented subject to the condition that the taxpayer renounces all other legal avenues, both in Luxembourg and abroad, in relation to the dispute settled under the MAP and approves the proposed solution. The said condition will apply for both solutions i.e. unilaterally agreed relief as well as relief pursuant to agreements between competent authorities.

Subject to taxpayer approval, Luxembourg will apply the solution agreed on regardless of the statute of limitations set out in its domestic law with respect to downward adjustments. Upward adjustments, however, are only possible within the statute of limitations of domestic law.

Dispute Resolution Mechanism

The tax authorities have notified Law of 20 December 2019 in line with EU Council Directive (EU) 2017/1852 for ensuring effective resolution of disputes concerning the interpretation and application of bilateral tax treaties, and the Union Arbitration Convention especially relating to double taxation disputes. The said Law would be applicable to disputes filed from 1 July 2019 in relation to tax years beginning on or after 1 January 2018.  

If a complaint is submitted under Article 3 of Law of 20 December 2019, any other ongoing mutual agreement or dispute resolution procedures dealing with the same dispute will be ended, including procedures initiated under a tax treaty.