A tax audit in Luxembourg does not always occur by chance. Certain situations or inconsistencies systematically attract the attention of the Luxembourg Inland Revenue (ACD). The main ones are listed below.
Mistakes related to substance:
- No director resident in Luxembourg: all directors reside abroad and never travel to Luxembourg. This is one of the most frequently identified warning signs.
- Exclusive use of circular resolutions: all decisions are made in writing from abroad, without any physical meetings held in Luxembourg. The absence of board meeting minutes is a direct red flag.
- No local expenses: no rent, no salaries, no Luxembourg-based service providers. A company without local operating expenses lacks credible substance.
Mistakes related to documentation:
- Annual accounts not filed with the RCS within the legal deadlines: this is a legal obligation for all companies. Repeated delays attract the attention of both the Trade and Companies Register and the ACD.
- Beneficial owners not declared in the RBE or outdated information: any change in shareholding must be updated within one month following the change.
- Tax returns inconsistent with actual financial flows: declared income without corresponding expenses, or expenses without supporting documentation, trigger requests for explanations.
Mistakes related to transfer pricing:
- Intra-group loans without documentation or arm’s length interest rates: the ACD verifies that conditions applied between related entities correspond to market conditions (arm’s length principle).
- Invoicing of services between group companies without formal agreements or economic justification.
- Abnormally low or high profit margins compared with sector benchmarks.
Other common triggers:
- Sudden change of structure or tax residence shortly before a disposal or a significant dividend distribution.
- Use of a favorable tax regime without meeting the eligibility conditions.
- Reporting by a foreign authority: the automatic exchange of information between EU countries (DAC) allows tax administrations to share data relating to companies and their beneficial owners.
The best protection remains prevention: rigorous documentation, a structure supported by genuine substance, and regular monitoring by a local professional help avoid the vast majority of these situations.
https://www.finovox.com/articles/fraude-fiscale-au-luxembourg
https://gouvernement.lu/fr/dossiers/2018/transparence-fiscale.html
https://www.justarrived.lu/informations-thematiques/fiscalite-conseil-luxembourg/tout-savoir-sur-la-fiscalite-et-le-conseil-au-luxembourg