Tax audit in Luxembourg: prepare the file, keep the deadlines.

What triggers a tax audit in Luxembourg?

Most often, a visible inconsistency between data the administration already holds. The annual accounts filed at the trade register, the modèle 500 return and the VAT returns describe the same activity; a turnover that differs from one filing to another, a margin out of line with the sector or a recurring VAT credit prompts a question. In practice the AED checks VAT credit refund claims before paying, and a return filed late draws attention to the whole file.

Other triggers relate to structure: a holding whose decisions appear to be taken outside Luxembourg, intra-group flows without transfer pricing documentation, a participation exemption applied without the conditions being documented. These topics belong to our tax advisor in Luxembourg page; the audit reveals them, it does not create them.

No official list of selection criteria is published. What we see in files is that consistency between the three filed documents, annual accounts, corporate tax return and VAT returns, closes most requests at the first answer.

What is the difference between a request for information, an on-site audit and a rectification?

The request for information is a letter: the ACD or the AED asks precise questions about an item, a transaction or a year, and sets a deadline for the answer. It carries no financial consequence by itself; the quality of the answer decides what follows. A complete, quantified answer with supporting documents closes the file or reduces it to a residual point. A partial or late answer leads to a second request, then to an assessment on the elements the administration holds.

The on-site VAT audit is a visit by an AED agent to the taxable person's premises, announced by letter, to examine the books, invoices and documents. The VAT law sanctions a refusal to hand over documents with a daily penalty of up to EUR 25,000 per day of delay after a warning (art. 77), which makes advance preparation decisive: invoices sorted by period, reconciliation between returns and general ledger, capital goods register.

The rectification is the act that changes the tax: a rectifying assessment from the ACD or a rectification notice from the AED, which corrects ex officio the errors found (art. 73 of the VAT law). From its notification, a three-month deadline runs to object. It is the only one of the three documents that opens litigation, and the only one whose date determines a right.

Which deadlines must be kept to contest an assessment or a rectification?

Three months from notification, in both administrations, and this deadline is not extended. For direct taxes, the objection is addressed in writing to the director of the ACD, with the name, address and tax number of the claimant, the identification of the assessment and the grounds (§ 228 of the general tax law). Notification is presumed to take place on the third working day after posting. The objection does not suspend payment: the contested tax remains due at its deadline and is refunded if the objection succeeds.

The director has six months to decide. An express decision is contested by an appeal for reversal to the administrative tribunal within three months of its notification; after six months without a decision, silence counts as rejection and allows the taxpayer to bring the case before the administrative tribunal. The judgment is challenged by an appeal to the administrative court within forty days of its notification, where a lawyer is indispensable. For a discretionary decision of the tax office, such as a refusal of payment terms, the route is the formal hierarchical appeal, also within three months.

For VAT, the written and reasoned objection is filed with the competent tax office within three months of notification of the notice; in case of total or partial rejection, the director of the AED is seized automatically and notifies the decision by registered letter. The appeal is brought by writ of summons before the Luxembourg district court sitting in civil matters, within three months of that decision or after six months of silence (art. 76 of the VAT law).

Tax fines are pronounced by the director of the AED or a delegate and are payable within the month of notification of the written decision, even if a remedy is lodged (art. 78); the remedy against the fine follows the route the law reserves for it. Where the assessment results from returns that were never filed, the way forward is described on our late tax filings regularisation page.

How does the firm prepare the file, and when does a lawyer step in?

The firm acts as a licensed accountant: it produces the figures, the documents and the technical explanations, and drafts the documents the company signs. Concretely, we rebuild the reasoning that led to each contested figure, we reconcile the three filed documents, we draft an answer or an objection setting out the facts, the amounts and the applicable texts, and we assist the director during an on-site audit. Exchanges with the agent are recorded and passed on to you.

The lawyer steps in as soon as legal advice or representation is involved: a disputed interpretation of a text, an appeal to the administrative tribunal or a writ before the district court, an appeal to the administrative court where their presence is mandatory, and any question of the director's personal liability. We do not give legal advice; we prepare the file the lawyer works from, which reduces their time and therefore their cost. You choose your lawyer or we recommend one.

This division also protects the company: the accountant who kept the books knows the documents and the choices made, the lawyer brings professional privilege over the litigation strategy. Where the audit reveals a structural weakness, it is then corrected in the routine compliance described on our accountant in Luxembourg page, or through a change of provider set out on change accountant.

How much does tax audit assistance cost?

On time spent, EUR 150 excl. VAT per hour for a senior accountant and EUR 250 excl. VAT per hour for the managing director of the firm, quote after scoping. A request for information about an identified item, in a file whose accounts we already keep, is handled in a few hours. A rectifying assessment covering several years, with full reconciliation and a draft objection, is priced after reading the assessment and the documents.

Three factors move the time: the period concerned, the state of the documents and the quality of the original bookkeeping. A file kept by the firm costs less to defend than a file taken over, because the accounting choices are known and documented. The lawyer's fees, where they step in, are billed by them and agreed directly with you.

Assistance fees are a deductible expense for the company. They come on top, where applicable, of the rectified tax, late-payment interest and fines; fines and late-payment interest relating to the company's income taxes are not deductible, while VAT adjustments follow the VAT regime, according to the right of deduction attached to the operation. For companies in routine compliance, the schedules are on our accounting fees and VAT fees pages.