The Law of 25th March 2020 approved by the bill n°7465 (the “DAC 6 Bill”), transposed in Luxembourg the Council Directive (EU) 2018/822 of 25 May 2018 amending the Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. This new obligation is known as “DAC 6”.
In order to enhance more tax transparency at the level of the European Union, it is put in place the obligation of reporting potentially aggressive cross-border tax-planning arrangements, which allows to the tax authorities to acknowledged these arrangements at an early stage, almost before they are actually implemented.
In terms of the Directive, a “cross-border arrangement” means an arrangement concerning either more than one Member State or a Member State and a third country where at least one of the following indications of a potential risk of tax avoidance “hallmarks” is met.
A hallmark is a characteristic or feature of a cross-border arrangement entailing its mandatory reporting if met. The five hallmark categories have been transposed into the Luxembourg law, which is closely following the Directive:
- Generic hallmarks linked to the main benefit test
- Specific hallmarks linked to the main benefit test
- Specific hallmarks related to cross-border transactions
- Specific hallmarks concerning automatic exchange of information and beneficial ownership
- Specific hallmarks concerning transfer pricing
The reporting obligation falls on intermediaries but also, in some specific cases, on relevant taxpayers.
By intermediaries the Directive means to any person that designs, markets, organizes or makes available for implementation or manages the implementation of a reportable cross-border arrangement.
It also means any person that, having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organizing, making available for implementation or managing the implementation of a reportable cross-border arrangement.
In order to be an intermediary, a person shall meet at least one of the following additional conditions:
- be resident for tax purposes in a Member State;
- have a permanent establishment in a Member State through which the services with respect to the arrangement are provided;
- be incorporated in, or governed by the laws of, a Member State;
- be registered with a professional association related to legal, taxation or consultancy services in a Member State.
In the case that more than one intermediary is involved in the same reportable cross-border arrangement, the obligation to file information would lie with all the intermediaries, unless if they can prove that the transaction has been already reported.
When it is not involved any intermediary located in the EU or if all intermediaries benefit from a professional secrecy privilege, the reporting obligation falls on the relevant taxpayer.
Relevant taxpayer means any person to whom a reportable cross-border arrangement is made available for implementation, or who is ready to implement a reportable cross-border arrangement or has implemented the first step of such an arrangement.
Some professionals such as lawyers, auditors and accountants, operating within limits applicable to their respective professions, benefit from a waiver of reporting information (professional secrecy privilege) but should notify any other intermediary or the relevant taxpayer. In Luxembourg, a relevant taxpayer cannot waive the legal professional privilege.
The reports could be submitted manually through MyGuichet or by importing an xml file. A user manual and the structure of the xml file will be made available on the Luxembourg tax authorities’ website. The interface will be available in English, French and German, but the information to report shall be provided in English
At the beginning, this reporting was compulsory as from 1st July 2020 within 30 days from the time implementation of the reportable cross-border arrangement becomes possible.
Besides, it has a retroactive effect as well, therefore the cross-border arrangements initiated between 25 June 2018 and 1 July 2020 must be reported by 31 August 2020 at the latest.
However, due to COVID-19, it was published in Luxembourg the Law of 24 of July 2020, which modifies the law of 25th March 2020. According to this amendment, there are new deadlines to report cross-border arrangements for intermediaries (and relevant taxpayers).
- The reportable cross-border arrangements where the first step was implemented between 25 June 2018 and 30 June 2020 would need to be reported by 28 February 2021 (and not 31 August 2020).
- Any reportable cross-border arrangements where a triggering-date criterion takes place between 1 July 2020 and 31 December 2020, and as from 1 January 2021, would need to be reported within 30 days starting from 1 January 2021.
A penalty would apply for failure to report, late reporting, incomplete or inaccurate reporting, as well as a breach of the requirements imposed on intermediaries concerned by the legal professional privilege.
The penalty, in line with those already applicable in the context of exchange of information, would amount up to EUR 250,000.
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