A first step towards a modern and digital tax administration

In March 2023, the former government submitted a proposal to modernise the direct tax administration and simplify tax procedures in Luxembourg. In July 2024, under the newly elected government, the initial proposal was split into draft laws n° 8186A and n° 8186B in reaction to criticism from various stakeholders. Draft law n° 8186B is still pending and a larger discussion on the proposed changes to the Luxembourg tax procedural law is expected in the future.

The voted law n° 8186A will introduce the following changes to the Luxembourg direct tax procedure. The changes will enter into force three days after publication in the official gazette which is expected to happen before year-end.

• Taxpayers may request from the tax collection office a payment of taxes by instalments over a period of maximum six months, provided that immediate tax payment would cause considerable difficulties and the tax deferral will not put the recovery at risk.
• The law introduces rules for administrative cooperation between the direct tax authorities (ACD), the Commission de Surveillance du Secteur Financier (CSSF) and the Commissariat aux Assurances (CAA) in specific areas and under conditions.

The ACD, CSSF and CAA can exchange personal and other data between themselves upon a motivated request from one of them in compliance with data protection rules. The requested information must be necessary for the legal mission of the ACD (i.e., the administration and enforcement of direct taxes), of the CSSF (i.e., the prudential supervision of the professionals and products of the Luxembourg financial sector, including the prevention of money-laundering and terrorist financing) or of the CAA which supervises the insurance sector in Luxembourg.

The CSSF and CAA are also empowered to spontaneously exchange information with the ACD gathered in the context of their legal missions and likely to be useful for the ACD to verify that Luxembourg reporting financial institutions do not adopt practices aimed at circumventing the disclosure of information provided for by the Common Reporting Standard (CRS) and FATCA law.

Likewise, the ACD can spontaneously share information about reporting financial institutions with the CSSF or CAA that is likely to be useful for their supervision of the financial and insurance sector.

• A newly crafted § 22bis of the Abgabenordnung (AO) authorises the outsourcing of IT work to the government IT centre (CTIE) and to private contractors, including subcontractors, while maintaining the confidentiality of taxpayer information under strict conditions of tax secrecy. In the event of a breach of tax secrecy, employees of the CTIE and private (sub-) contractors may be subject to a penalty (i.e., imprisonment between eight days and six months, and a fine between 500 and 5 000 Euro). A Grand-Ducal decree lists specific tasks that can be outsourced to private (sub-) contractors, excluding assessment and collection of direct taxes.
• Rules governing security deposits by taxpayers have been repealed. Stay of payment, stay of execution and deadline extensions can now be granted without the need for a guarantee deposit by taxpayers.
• The Luxembourg state enjoys certain privileges when it comes to the recovery of unpaid direct taxes. Most importantly, the tax assessment notice can be directly enforced against taxpayers – without the need to obtain a legal title from a court.

This privilege also applies to the enforcement of social security payments, to the membership fee payable to the Chamber of Commerce and to other specific claims. This privilege is now extended to any other claim for which enforcement is entrusted to the chief collector (receveur) of the direct tax administration.