Luxembourg - Legislation On Mutual Agreement Procedure

Luxembourg issued a Circular (L.G. - Conv. D.I. n° 60) on procedures for the implementation of the Mutual Agreement Procedure (MAP) for bilateral tax treaties concluded by Luxembourg.

Scope and Access

The mutual agreement procedure intends to harmonize the interpretation and application of the tax treaty in both contracting states. As regards elimination of double taxation due to the overlap of taxing right, the circular covers triangular cases, which falls outside the scope of a bilateral tax treaty. In particular, Luxembourg does not treat interest and penalties as part of the tax treaties. Mutual agreement procedure should be accessible to taxpayers in the following situations:

  • Access is to be granted where there is an application of an anti-abuse provision provided for either by a tax treaty or by domestic law;
  • Access to the mutual agreement procedure is granted for transfer pricing cases as well as for all other cases where taxation is not in accordance with a tax treaty;
  • Taxpayers are in good faith where adjustments are required in transfer pricing cases or allocating the income of foreign permanent establishment;

In the context of a tax audit, access to the mutual agreement procedure will be guaranteed in all cases.

Procedure issue

In order to apply the procedure, corresponding documentation requirement and time limit (in principle 3 years after the notification of measures, however it depends on different variables) should be respected. By commencing the mutual agreement procedure, Luxembourg will try to solve the issue via a unilateral action, such as recovering the amount paid or granting relief to the applicant. However, once the mutual agreement procedure is commenced, all the refund may not be granted until the procedure ends. As regards the interaction with EU Arbitration Procedure, the application of either procedure does not preclude the commencement of the other procedure.

Source: Luxembourg Government (in French)

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