Tax Dispute Resolution Mechanism

The Bill of Law 7431 ("Bill") introduced by the Luxembourg government on 11 April 2019 implements the European Union ("EU") Directive 2017/1852 dated 17 October 2017 on tax dispute resolution mechanisms in the EU (the "Directive"). The Directive meets the BEPS Action Plan 14 minimum standards and is a subsidiary to the mandatory binding arbitration clause of the Multilateral Instrument1 (if applicable). The objective of the Directive is to provide an efficient resolution mechanism for disputes arising between EU Member States regarding the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital ("Resolution Mechanism")

The Bill incorporates the content of the Directive to a greater extent.

The effectiveness of the Resolution Mechanism relies on strict deadline periods in each procedural phase and on an obligation for the Members States to reach a solution.

A Luxembourg and/or EU tax resident affected person may file a complaint before the Administration des Contributions Directes ("ACD") and the other relevant competent tax authority(es) involved ("CTA") simultaneously2 against the question in dispute which lead to a double taxation.3. The filing must be done within three years from the receipt of the first notification of the action resulting in, or that will result in the dispute4. The ACD must acknowledge receipt of the complaint and inform the CTA of such receipt within two months5.

The complaint must include all information and documents required under the Bill. However, if necessary, the ACD is allowed to request additional specific information within three months of receipt of the complaint. The affected person has three months from the receipt of the request to provide the information to the ACD unless such information would violate the protection of industrial, commercial, professional or business processes. A copy of the response must be notified simultaneously to the CTA6.

From there, the ACD must take a decision on the admissibility or rejection of the complaint within six months from its receipt or within six months of having received additional specific information (whichever is later)7. If, within the six month period a decision has not been notified to him, then the complaint is presumed accepted by the ACD8.

The outcome of the Resolution Mechanism essentially depends on the ACD's and CTA's decisions on the admission or...

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