On 17 February 2017, the Commission de Surveillance du Secteur Financier ("CSSF"), together with the Financial Intelligence Unit ("FIU") have published a new circular (hereafter, "the Circular") providing more details on the professional duties relating to tax crimes that professionals should apply .
This circular follows the recent European and national development and legislations aiming to prevent the use of financial systems for the purpose of money laundering and financing terrorism (hereafter: "AML/CTF"), i.e. among others the 2012 FATF revised recommendations, the 4th AML directive as well as the Law of 23 December 2016 implementing the 2017 Tax reform, as it extends its application to tax crime related to direct and indirect taxes by formerly recognizing aggravated tax fraud and tax swindle as predicate offence .
3 types of Tax fraud have been defined, from simple tax fraud with administrative sanction to aggravated tax fraud and tax swindle, both considered as criminal sanctions and sentenced by imprisonment (1 month to 3/5 years) and fines (between 25.000 EUR and 6/10 times the amount of taxes avoided or reimbursement unduly obtained). The 2 latters being considered as predicate offence only.
Consequently, the Professionals must ensure that appropriate customer due diligence measures are in place to properly address tax crime for any new business relationships established from the 1st January 2017 as well as for any existing relationships on a risk based approach basis. This means that professionals will have to capture appropriate information on the purpose and nature of the business relationship, on the origin of the funds/assets to properly evaluate and document the financial situation of the client, its compliance with its tax obligations as well as scrutinize the transactional activities.
Terminated business relationships as at 31 December 2016 are out of scope. Dormant accounts have been considered as well in situation where the account would be reactivated or the assets requested by their successors.
The scope is applicable to tax crime committed or attempted both in Luxembourg and abroad as long as tax crime would be incriminated in this specific country. In addition, specific thresholds of evaded taxes have been defined by the law of 23 December 2016 for tax offences carried out in Luxembourg, enabling the professional not necessarily to report any suspected transaction to the FIU if the avoided tax amount is below 10.000 EUR.
A list of 22 indicators is provided in Appendix 1 to the Circular to help professionals identifying potential tax crimes which may serve money laundering purposes or terrorism financing and reporting suspicious transaction activity to the FIU accordingly.
It is the presence of one or several of these indicators that may trigger a suspicion requiring further analysis from the professionals and appropriate reporting to the FIU if needed.
This list is not exhaustive and does not prevent the professional to evaluate each situation/transaction on a case by case basis.
Furthermore, the professionals are not under the obligation to qualify the tax offence.
The publication of this Circular implies that professionals would need to update their internal procedures and policies with regards AML/CTF in order to include aggravated tax fraud and tax swindle as predicate offence of money laundering and ensure appropriate due diligence measures are in place as well as complement these updates with appropriate trainings to professional's employees .
KPMG Luxembourg can assist you further in the implementation of this circular and these new requirements in your existing policy, combining the expertise of both Tax and Financial Crime experts.
The circular is available (only in French) on this link.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
