Luxembourg’s tax office granted more favourable “advance tax decisions” last year than in 2020, but the figures were still far below those recorded 5 years ago. Library picture: Luxembourg’s finance ministry. Photo credit: Matic Zorman

Luxembourg’s tax office granted more favourable “advance tax decisions” last year than in 2020, but the figures were still far below those recorded 5 years ago. Library picture: Luxembourg’s finance ministry. Photo credit: Matic Zorman

The number of advance tax decisions, often called “comfort letters”, issued by Luxembourg Inland Revenue (ACD) and the success rate of petitioners both grew last year, after several years of sharp declines.

ACD delivered 84 pre-emptive tax opinions in 2021, compared to 72 in 2020. Despite the increase, the overall number of advance tax decisions remained low compared to a few years ago. The total number had dropped by 90% between 2015 and 2020.

There are two types of advance tax decisions: advance tax rulings, written confirmation of how tax law will be applied to a taxpayer’s specific case, and advance price agreements, how transactions between different parts of a multinational corporation will be treated.

Companies and wealthy individuals seek the opinions before striking a deal to ensure they have correctly calculated the tax consequences of the arrangement. Comfort letters have been criticised by campaigners for being distortive and often unfair, and by the European Commission, which has said they sometimes amount to unlawful state aid.

The ratio of positive replies to taxpayer requests rose by 10 percentage points between 2020 and 2021, after a steep decline had been recorded the previous period. ACD granted 83%-85% of taxpayer requests in 2015-2017, compared to 59% in 2020 and 69% in 2021.

Luxembourg’s finance ministry released the last month in an annex to its annual activity report.

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