As from 1 July 2020, intermediaries with a link to Luxembourg, and taxpayers are subject to new reporting obligations towards the Luxembourg tax authorities (LTA). Approved on 21 March 2020, the Luxembourg bill implements the EU mandatory disclosure directive (known as DAC 6), which targets cross-border arrangements featuring potential indicators of aggressive tax planning. Fines of up to EUR 250,000 are applicable in case of non-compliance.

Service providers and taxpayers and their service providers alike can now proceed to making final preparations for DAC 6 disclosures. This will include identification of the reportable cross-border arrangements (RCBAs) they have been involved in since 25 June 2018, collecting the information which has to be disclosed for each RCBA and (preferably) coordinating the reporting for each RCBA.

For further details on DAC 6, reference is made to our article dated 14 June 2018 and our newsletter Mandatory Disclosure Directive. For more information on the Luxembourg bill, reference is made to our newsflashes of 12 August 2019 on the publication of the original bill in Luxembourg and of 19 February 2020 on amendments to the bill.

1. What is targeted by the Luxembourg bill?

In line with DAC 6, the Luxembourg bill aims at timely providing the LTA information about RCBAs, i.e., cross-border arrangements concerning at least one EU Member State and meeting at least one of the hallmarks set out in DAC 6. The term ‘arrangement’ is not further defined in DAC 6 or in the Luxembourg bill. An arrangement includes (but is not limited to) a transaction, action, agreement, loan, commitment, or a combination thereof.

The hallmarks are proxies to characterise potentially aggressive tax planning arrangements and arrangements designed to circumvent reporting requirements such as the Common Reporting Standard and ultimate beneficial owner reporting. Some of the hallmarks only apply if the so-called ‘main benefit test’ is satisfied, which (under the Luxembourg bill) is the case where one of the main advantages that a person may reasonably expect to derive from an arrangement is a tax advantage in the EU or in a third country. Arrangements concerning value added tax, custom duties and social security premiums are out of scope.

2. Who is subject to a reporting obligation?

Primary reporting obligation with intermediaries

The reporting obligation primarily lies with intermediaries, i.e., persons (individuals, entities) who (i) design, market, organize, make available for implementation or manage the implementation of an RCBA; or (ii) provide assistance in relation to activities under (i).

An intermediary will only have to report information to the LTA if Luxembourg is the EU Member State featuring first in the list below:

  1. the Member State where the intermediary is tax resident;
  2. the Member State where the intermediary has a permanent establishment through which the services with respect to the RCBA are provided;
  3. the Member State where the intermediary is incorporated or governed by the laws of;
  4. the Member State where the intermediary is registered with a professional association related to legal, tax or consultancy services.
Secondary reporting obligation with taxpayers

If no intermediary is involved, if there is no intermediary involved with a link to an EU Member State, or if the intermediary qualifies as an exempt intermediary under Luxembourg law, then it is the taxpayer that will have to report with the LTA, provided that Luxembourg is the EU Member State featuring first in the list below:

  1. the Member State where the taxpayer is tax resident;
  2. the Member State where the taxpayer has a permanent establishment benefiting from the arrangement;
  3. the Member State where the taxpayer receives income or generates profits, although the taxpayer is not tax resident and has no permanent establishment in any Member State;
  4. the Member State where the taxpayer carries on an activity, although the taxpayer is not tax resident and has no permanent establishment in any Member State.

Exempt intermediaries under Luxembourg law

Lawyers, accountants and auditors acting within the boundaries of their profession and subject to the Luxembourg laws governing these professions are excused from the reporting obligation. However, such an excused intermediary must notify this exemption to any other intermediary involved. Failing an intermediary who is not exempt from the reporting obligation, such obligation is then shifted to the taxpayer itself. The exempt intermediaries will have to notify the taxpayer that the obligation is shifted to him. In the latter situation, exempt intermediaries must also provide the taxpayer with all information (known by them or available to them) that the taxpayer needs in order to comply with his reporting obligation. The taxpayer and an exempt intermediary may agree on a mandate pursuant to which an exempt intermediary would do the reporting on behalf of the taxpayer.

Important outstanding questions

DAC 6 and its implementation in Luxembourg fail to clarify many important aspects of the reporting regime. For instance, it is unclear what proof intermediaries and taxpayers may use if the reporting was (possibly) already done by another person, or in another Member State. The application of hallmarks with concrete examples is another area where guidance is much needed. Also, the legislator did not clarify whether individual employees of a consultancy firm could qualify as an intermediary in tandem with or separately from the firm itself. The same question arises in respect of individual partners of a professional partnership if clients have contracted with the partnership.

3. What information must be reported?

The information that shall be disclosed to the LTA includes:

  1. the identification of intermediaries and relevant taxpayers;
  2. details of the relevant hallmarks;
  3. a summary of the content of the arrangement;
  4. the date of the first step of implementation;
  5. details of the national provisions forming the basis of the arrangement;
  6. the value of the arrangement;
  7. the Member States involved in the arrangement;
  8. the identification of any other person in a Member State likely to be affected by the arrangement.

In addition, for each year during which an RCBA applies, the taxpayer will have to disclose in his income tax return how he has used the arrangement.

4. Deadlines

For non-exempt intermediaries, information about RCBAs will have to be disclosed within 30 days after the arrangement is ready for implementation or the first step in the implementation has occurred, whichever comes first. For the reporting of RCBAs, the first step of which was implemented between 25 June 2018 and 30 June 2020, the reporting deadline is 31 August 2020.

Exempt intermediaries must comply with their notification obligation within 10 days after the RCBA is made available for implementation to the taxpayer or when the first implementation step has occurred, whichever comes first.

5. Sanctions

Intermediaries and taxpayers who infringe their obligations risk penalties of up to EUR 250,000.

Loyens & Loeff can assist you with a full impact assessment, sample and final reporting of arrangements, as well as with advice on how to demonstrate that you are in control of the manner in which DAC 6 impacts your operations.