Luxembourg: DAC6 Implementation Into Luxembourg Law: Who Has To Report What To Whom, How And When?

Last Updated: 20 September 2019
Article by Frédéric Feyten, Jean-Dominique Morelli, Sophie Arvieux and Ali Ganfoud

What's DAC 6?

DAC6 is the name commonly given to Directive 2018/822 of May 25, 2018 amending Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation in relation to reportable crossborder arrangements, which entered into force on June 25, 2018, and must be implemented by EU member states before December 31, 2019, to be applied as of July 1, 2020 (hereafter referred to as the Directive or DAC6).

In a nutshell, DAC6 introduces a new set of transparency measures by requiring intermediaries or, in the absence of an intermediary, the relevant taxpayer, to report on potentially aggressive crossborder tax-planning arrangements they are involved in to their relevant tax authorities and by setting out rules for the subsequent exchange of this information between tax administrations.

Consistent with Action 12 of the Base Erosion and Profit Shifting (BEPS) initiative proposed by the Organization for Economic Co-operation and Development (OECD), DAC6's objective is to tackle tax avoidance and evasion. DAC6 aims to enable tax authorities to deter harmful practices or to detect potential risks of avoidance or loopholes early and address them through effective audits or adequate reforms.

On August 8, 2019, the Luxembourg government submitted to the Luxembourg parliament a draft law implementing DAC6 into the national law. The Luxembourg draft law mirrors the text of DAC6 and does not extend the reporting obligation to domestic arrangements. The arrangements concerning "indirect" taxes (i.e. value added tax, custom duties, excise duties and compulsory social security contributions) remain out of the scope of this mandatory disclosure regime.

Why this paper?

The purpose of this paper is twofold: (i) outline the Luxembourg legislative proposal and (ii) shed light on how this new disclosure regime will affect intermediaries and taxpayers in Luxembourg.

Answering the different pieces of the following question should help explain DAC6 and its implications: Who has to report what to whom, how and when?

Who?

The disclosure obligation is on intermediaries in the first instance.

An intermediary is broadly defined under DAC6 as "any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement".

Intermediary 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".

Banks, insurers, consulting firms, accountants, law firms, tax advisors, family offices as well as public notaries would qualify as intermediaries who will have to disclose information that is within their knowledge, possession and control.

Given the nature of the business activities carried out in or originated from Luxembourg, many financial institutions will have to comply with the DAC6 mandatory disclosure obligations on a daily basis.

A waiver for legal professional privilege will be available to lawyers admitted to practice in Luxembourg and subject to the Luxembourg law of August 10, 1991: Should the obligation to report constitute a breach of their legal professional privilege, the lawyers must notify within 10 days any other intermediary involved in the transaction or the relevant taxpayer of their reporting obligations. The reporting obligations would then shift to any other involved intermediary or the taxpayer benefiting from the cross-border arrangement (in case no other intermediary is involved) so that the lawyer's legal professional privilege would not hamper the timely and mandatory disclosure of the relevant reportable cross-border arrangement(s).

In addition, notwithstanding the waiver of reporting obligations linked to their professional privilege, lawyers will remain liable for reporting anonymous information of a general nature on the cross-border arrangements.

Where no intermediary is involved in the transaction, the reporting obligation will lie with the relevant taxpayer.

A "relevant taxpayer" is defined as "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."

It should be noted that the Luxembourg lawmakers have (for now) opted not to extend the waiver for legal professional privilege to other professions apart from lawyers, such as for instance bankers, insurers, auditors and public notaries.

A client, being as taxpayer subject to reporting obligations, may still entrust the fulfillment of their reporting obligations to their lawyer, acting as their proxy.

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