On 8 August, the Luxembourg Government submitted draft law No. 7465 (the “Draft Law”) to the Luxembourg Parliament. The Draft Law transposes the EU Directive on the mandatory disclosure and Exchange of cross-border tax arrangements, commonly referred to as DAC6. The Draft Law now awaits the Luxembourg legislative process and may be amended before it is voted by the Luxembourg Parliament.
As a reminder, the DAC6 Directive introduces new reporting obligations applicable to EU intermediaries involved in cross-border tax arrangements which are characterised by certain “hallmarks”. If the intermediary required to make the filing is protected by professional privilege, he / she must inform other EU intermediaries or the taxpayer that they must disclose the arrangement to the tax authorities (please refer to our newsletters dated October 2018 and April 2018 for more details on the DAC6).
The Draft Law follows the Directive closely and confirms with regards to its scope, that reporting is not required for purely domestic arrangements. Likewise, solely arrangements pertaining to direct taxes must be disclosed. Arrangements regarding VAT, stamp duties or excise duties are excluded.
Additionally, the Draft Law provides an important clarification in stating that legal professional privilege applies to Luxembourg lawyers, who are thereby dispensed from disclosing arrangements. Nonetheless, they must provide the tax authorities with information related to the reportable cross-border arrangement (omitting client-specific information). Moreover a Luxembourg lawyer must within 10 days following the setting-up of a reportable cross-border arrangement inform other intermediaries or the taxpayer of their reporting obligation.
Finally, the Draft Law foresees penalties up to EUR 250,000 for breaching reporting obligations, determined on a case-by-case basis. The intention of the taxpayer is taken into account when determining the fine. The intermediary or the taxpayer has the possibility to file an appeal in front of the Lower administrative court against the fine.
Although the Draft Law is due to enter into force by 1 July 2020, the reporting obligations of intermediaries and taxpayers will cover the period starting 25 June 2018.