On 14 October 2019, the Luxembourg Parliament (Chambre des députés) released the 2020 draft budget law (Bill).1 The major proposed tax measure provided by the Bill should affect rulings (i.e., Advance Tax Agreements (ATA) and Advance Pricing Agreements (APA)) issued by the Luxembourg Tax Authorities (LTA) before 1 January 2015. According to the Bill, the ATAs and APAs should cease to be applicable as of the end of the 2019 fiscal year.
End of the unlimited validity of ATAs and APAs issued before 1 January 2015
Paragraph 29a of the Luxembourg General Tax Law dated 22 May 1931 (Abgabenordnung; General Tax Law), introduced by the law of 19 December 2014, already provides a limitation period of five years for ATAs and APAs issued after 1 January 2015. ATAs and APAs issued before this date were not subject to this limitation period and were therefore considered valid for an unlimited period of time to the extent that they comply with the legislation in force and the fact pattern they originally set out.
Paragraph 29b of the General Tax Law, newly introduced by the Bill, aims to ensure legal coherence between the old and new procedures applicable to ATAs and APAs. Further to the adoption of the Bill, the LTA will remain bound only by ATAs and APAs that have been subject to the procedure set forth in §29a of the General Tax Law (i.e., the new procedure).
Practical implication of the Bill
Any ATAs or APAs issued before 1 January 2015 should cease to be applicable by the end of the 2019 fiscal year which means that taxpayers should still be able to rely on the ATAs and APAs signed before 1 January 2015 one last time, as part of their 2019 tax returns.
Possibility to request a new ATA or APA for taxpayers impacted by the Bill
According to the commentaries of the Bill, taxpayers with an ATA or APA issued before 1 January 2015 should be able to request a new ATA or APA to the LTA based on the new procedure provided by §29a of the General Tax Law (mentioned above).
This position seems different from §29a of the General Tax Law as well as the Grand-Ducal Regulation of 23 December 2014 which provides the opportunity to file an ATA or APA only for "envisaged operations" that "have not yet produced legal effects." It is unclear for the moment how the Bill and the §29a of the General Tax Law, as well as the Grand-Ducal Regulation of 23 December 2014 mentioned above, will coexist.
Since the Bill is at the very beginning of the legislative process,2 there is a possibility that further amendments may be adopted.
The Bill will not have any effect on ATAs and APAs issued after 1 January 2015 but only on ATAs and APAs issued before this date. This does not mean that the tax treatment mentioned in the ATAs and APAs issued before 1 January 2015 will automatically cease to be valid upon the adoption of the Bill. However, it will have to be re-assessed in the context of new international standards of tax transparency to which Luxembourg is strongly engaged to commit. In this context, we highly recommend taxpayers in such situations (i.e., relying on ATAs or APAs issued before 1 January 2015) to carefully review the status of their existing ATAs and APAs in order to assess any potential adverse consequences on their operations.