The Luxembourg tax authorities (LTA) have just published a new circular on tax treaty-based mutual agreement procedures (MAPs). MAPs are an interesting dispute resolution alternative to traditional court proceedings, notably from a confidentiality and timing perspective.

1. Defending the taxpayer's interests through a MAP is made easy

Anticipate trouble – A Luxembourg taxpayer may submit a MAP request to the LTA if he considers that the actions of Luxembourg and/or the State having concluded a tax treaty with Luxembourg result or will result for him in taxation not in accordance with the tax treaty. A MAP may be initiated irrespective of the remedies provided by the domestic law of those States.

Wide access – The circular maintains two taxpayer-friendly principles: access to MAPs should be as broad as possible, and the deadline for filing a MAP request (usually three years from the first notification of the action resulting in taxation not in accordance with the tax treaty) must be interpreted in the least restrictive manner. A Luxembourg resident company may even file a MAP request to protect the interests of a permanent establishment located in a State which is not party to the relevant tax treaty.

Protective MAPs – The circular expressly allows the submission of protective MAP requests. A taxpayer that wishes to wait for the completion of a domestic procedure before the LTA start discussing his case with their foreign counterpart, may still file a MAP request which will then not be examined before the taxpayer requests to do so.

Substance rather than form – MAPs are less formalistic than court proceedings and strongly focus on substance. The circular emphasizes the requirements to clearly identify the relevant tax treaty provisions and explain the interpretation defended by the taxpayer, and to disclose whether the issue has been the object of a ruling request or a judgment and whether other procedures have been or will be launched before courts or the competent authorities.

2. The taxpayer is involved at various steps of the MAP

A discussion-based procedure – If the LTA request additional information and the taxpayer does not respond in time, the MAP request is deemed to be unfounded. Apart from a small timing adjustment (the LTA commit to notify their relevant counterpart of the submission of a MAP request within two months of the receipt of the request, instead of four weeks), typical steps of the MAP remain unchanged and are consensus-oriented. If Luxembourg is responsible for the alleged violation of the tax treaty, it will first try and unilaterally remedy the issue. If the other State seems responsible for the tax treaty violation, the LTA will ask their foreign counterpart to state their stand and will endeavour to respond to such stand within six months of its receipt.

From a MAP to arbitrage – If no consensus is reached, depending on the tax treaty, the LTA and the other State's authorities may have to submit the unresolved issue to binding arbitration if the taxpayer so requests. As Luxembourg is a party to the 2017 OECD multilateral instrument, a mandatory arbitration provision has been introduced in several tax treaties concluded by Luxembourg.

Control retained by the taxpayer – the taxpayer may put an end to a tax treaty-based MAP by withdrawing his request or by submitting (where possible) a complaint based on the Luxembourg law implementing the directive on tax dispute resolution mechanisms in the European Union. If the envisaged outcome of the MAP would entail a modification of the Luxembourg tax treatment, the proposed suggestion will only be implemented with the taxpayer's consent.

Originally Published by , March 2021

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