Luxembourg

Taxable period

The taxable period for Luxembourg fully taxable resident entities follows the financial year (i.e. accounting year) of the company.

Companies generally use the calendar year for accounting purposes but may apply a different accounting year. The taxable period would, in such cases, correspond to this different accounting year. The tax year is the year in which the accounting year ends.

Tax returns

As per the Budget Law 2023, CIT and municipal business tax returns of a given year should, as of tax year 2022, be filed by 31 December of the following year. For NWT, the return of a given year should be filed at the latest on 31 December of that year since the return is based on the balance sheet as at 1 January of the tax year. Tax returns for companies liable to CIT have to be mandatorily filed electronically.

Tax assessments are issued after the end of the tax year and normally can be finalised within five years, although the delay may extend to ten years if the declaration is found to be incomplete or inexact, with or without the intention of fraud. Once issued, the tax assessment notice is, in principle, final (unless new facts come to light).

Tax assessments are issued by the tax authorities immediately upon receipt of the tax return, based on the taxable profit reported by the company. The tax authorities may then reassess or request more information on the return within the period of five years that follows the receipt of the tax return.

Luxembourg companies are free to choose the currency in which they wish to prepare their commercial accounts to the extent that it is freely tradable currency. Luxembourg companies that expect to conduct most of their business in a currency other than euros will therefore generally opt to use that 'foreign' functional currency to draw up their financial statements. In particular, this will save such companies from having to recognise, for accounting purposes, foreign exchange gains and losses that do not reflect the economic reality of their business.

Nevertheless, as a general rule, Luxembourg taxpayers in such a situation have until now been required to file their tax returns in euros, basing these returns on euro-denominated tax balance sheets. Luxembourg taxpayers are allowed, upon request, to determine their taxable basis solely in a 'foreign' functional currency, and then only having to convert the final basis figure into euros. This has averted the need to establish a euro-denominated tax balance sheet simply for tax filing purposes.

Circular L.G.-A n°60, issued by the Luxembourg tax authorities on 21 June 2016, formalises this well-established practice and provides a clear framework.

Payment of tax

Quarterly tax advances must be paid. These payments are fixed by the tax administration on the basis of the tax assessed for the preceding year or on the basis of the estimate for the first year. This estimate is given by the company pursuant to the request of the Luxembourg tax authorities.

Final payment of CIT must be paid by the end of the month that follows the month of reception by the company of its tax assessment.

Topics of focus for tax authorities

Further to the introduction of a comprehensive legal framework in this respect, Luxembourg tax authorities focus increasingly on transfer pricing matters, and the methods used to determine the arm’s-length remuneration of Luxembourg-based companies are being closely assessed by the Luxembourg tax authorities.

General anti-abuse rule (GAAR)

The Law implementing ATAD 1 into Luxembourg domestic tax law and applicable as of tax years starting on or after 1 January 2019 contains a provision affecting GAAR. Indeed, under the new Law, Luxembourg is to adapt and modernise its existing GAAR. 'Abuse of law' criteria and general practice have been developed progressively over recent years by authors and judges.

Under the Law text, there is an abuse of law if the legal route, having been used for the main purpose or one of the main purposes of circumventing or reducing tax contrary to the object or purpose of law, is not genuine having regard to all relevant facts and circumstances.

The legal route, which may comprise more than one step or part, shall be regarded as non-genuine to the extent that it was not used for valid commercial reasons that reflect economic reality.

The text, while adapted to reflect the content of article 6 of ATAD 1, is designed to preserve legal certainty derived from existing case law on the subject.