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DAC6 Implementation in Luxembourg - Deposit of the Bill of Law

  • United Kingdom
  • Tax planning and consultancy

04-09-2019

On 9 August 2019, Luxembourg government filed with the Parliament the bill of law (the “Bill”) implementing the so-called “DAC6” (EU Directive 2018/822 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements) in Luxembourg domestic law.

DAC6 Objectives:

DAC6 is the latest step of the European Union (“EU”) in seeking to achieve greater tax transparency and exchange of information. DAC6 is inspired by the Final Report on Action 12 of the OECD Base Erosion and Profit Shifting (i.e. BEPS Project) which provides recommendations regarding the design of mandatory disclosure rules for aggressive and abusive transactions, arrangements or structures.

DAC6 is targeted at cross-border arrangements that present a strong risk of tax avoidance or abuse which will have to be reported to the relevant tax authorities by qualifying intermediaries or, under certain circumstances, by taxpayers directly. By 31 December 2019, all EU Member States are required to have implemented DAC6 which will allow for the automatic exchange of information within the EU on a quarterly basis.

Scope of the DAC6 reporting obligations:

The Bill is in line with DAC6 and does not provide many additional provisions which are not already set out in the directive. This leaves plenty of room for interpretation. Guidelines, expected from the legislator or the tax authorities, will have to be adopted to ensure the security of the transactions of the Luxembourg place.

  • intermediaries/taxpayer: reporting obligations rest on (i) intermediaries (such as financial and tax advisers, lawyers, banks, auditors, PSFs, management companies, AIFM, accountants, trust companies/corporate agents…) who design or provide, directly or indirectly, assistance with respect to reportable arrangements or and (ii) taxpayer(s) if no intermediary has to report already (e.g. exempted intermediaries, in-house schemes). The scope of who is considered to be an intermediary is particularly wide as soon as it also covers intermediaries that know, or who are reasonably expected to know that, they are providing assistance with respect to a reportable arrangement. Specific rules apply to lawyers in order to protect the legal privilege, and lawyers acting in the scope of their profession may not be required to report their clients’ arrangement directly.
  • reportable arrangements: The term “arrangement” is not further defined in the Bill and covers any cross border arrangement gathering one of the “hallmarks” listed in the Bill. The Bill strictly and only reproduces the hallmarks listed in DAC6. An arrangement can notably be a transaction, action, agreement, loan, commitment, or a combination of the latter. Those hallmarks already raised many concerns at the time of the DAC6 publication regarding the leak of legal certainty created by using such wide concepts.
  • taxes covered: All taxes are covered (including income and corporate tax, capital gains tax, registration duties, local taxes, real estate taxes, wealth or inheritance taxes…) except for indirect taxes (such as VAT, customs and excise duties).

Annual reporting agenda & Penalties:

Reportable Information will have to be submitted within 30 days of the implementation of the relevant cross border arrangement (i.e. either when it is ready for implementation or after the first step has occurred). In addition, each relevant taxpayer will have to mention in its annual tax return how he has used the arrangement.

Intermediaries and taxpayers who infringe the national provisions may be subject to penalties of up to EUR 250,000, which is in line with the fines applicable under FATCA and CRS laws. Note that the relevant intermediary or taxpayer may appeal against the fine.

Timeline:

From 1 July 2020, qualifying cross-border arrangements will have to be reported to the relevant tax authorities by qualifying intermediaries or, under certain circumstances, directly by taxpayers directly. For the reporting of cross-border arrangements, covering retroactively the ones implemented between 25 June 2018 and 30 June 2020, the reporting deadline is 31 August 2020.

It is expected the legislative process to be achieved before the end of the year.

Concluding remarks:

As anticipated, the Bill uses the same broad concepts as DAC6 without providing any practical guidelines on their effective application. This leaves plenty of room for debate.

Luxembourg intermediaries should already anticipate their reporting obligations in monitoring the legislative process of the Bill until the final vote of the law. Debates and amendments proposals will be followed carefully, especially regarding the opinion of the Council of State which may leads to certain clarifications and/or amendments.

Special attention should be given to arrangements implemented since 25 June 2018 as the reporting obligations will be retroactively applied. All arrangements in place since this date should therefore be carefully reviewed - and, if necessary, the relevant intermediaries determined - before the end of the year.

It is expected that the representatives of the industry will release their comments and possibly their guidelines over the coming months.

Please follow the below link to access to the text:

Luxembourg Bill of Law transposing (EU) 2018/822 of 25 May 2018

How can we help you ?

If you would like to discuss the above, further discuss your assessment/reporting obligations, the implementation process or any other related issue with us please contact our tax law experts Olivier Gaston-Braud and Marion Zeller, via the contact details below.

For more information contact

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