On 16 October 2024, the Lower Administrative Court (Tribunal administratif) annulled a decision by the Director of the Luxembourg Tax Authorities (“LTA”) (Administration des contributions directes) to uphold and increase the amount of a fine imposed by the Tax Office on a tax consultancy company for unintentional tax fraud. The case concerns a tax fine that was imposed on the tax consultancy company for having unintentionally participated in a tax fraud committed by one of its clients by preparing fraudulent tax returns for him. The fine amounted to 5% of the tax evaded by the company's client. The company lodged a claim against this fine with the Director of the LTA. As part of his decision, the Director not only rebutted the Company’s request, but also increased the fine to 10% of the tax evaded, i.e. it reformed in pejus.
In its appeal against the decision of the Director, the company first argued that the person who had signed the decision was not competent because no delegation of signing authority had been published by the Director of the LTA. According to the Lower Administrative Court, the law does not require the delegation of signing authority by the Director of the LTA to be published, so that the decision was validly signed. Secondly, the company claimed that the principle of adversarial proceedings had been breached because the tax authorities had not contacted the company to find out about its activities and had not given it the opportunity to express its views before taking the decision. On this point, the Lower Administrative Court upheld the company's argument. Notably due to the penal nature of the decisions, the Lower Administrative Court emphasised the essential nature of the respect of principle of adversarial proceedings. The Lower Administrative Court found that neither the Tax Office nor the Director warned the taxpayer of their intention to impose (or to increase) the fine or communicated the reasons for their decisions to the taxpayer before imposing (or increasing) the fine. As the taxpayer had no opportunity to comment before the decisions were issued, no adversarial proceedings took place before the issuance of the Director’s decision and the Lower Administrative Court thus annulled the Director's decision.
While the decision did not go further into the technicalities of application of fines to (tax) advisors for unintentional tax fraud, a type of fine the LTA increasingly started to use, it nonetheless provides helpful guidance as to the procedural aspects that need to be respected when trying to impose such fines.
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