The bill contains several sections that complement and extend the existing domestic rules on tax transparency and exchange of information.
On 13 June 2022, the Luxembourg government laid bill no. 8029 (the "Bill") before Parliament. It would implement into domestic law Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation ("DAC 7").
The Bill contains several sections that complement and extend the existing domestic rules on tax transparency and exchange of information.
The Bill includes provisions of DAC 7 that expand and help harmonise the exchange of information between the tax authorities of different Member States. Notably, a definition has been established for the term "foreseeable relevance" (pertinence vraisemblable): requested information is foreseeably relevant where, "at the time the request is made, the requesting authority considers that, in accordance with its national law, there is a reasonable possibility that the requested information will be relevant to the tax affairs of one or several taxpayers, whether identified by name or otherwise, and be justified for the purposes of the investigation."
The Bill also clarifies the exchange of information mechanism for requests on a group of taxpayers that cannot be identified individually. In this case, the foreseeable relevance of the requested information must instead be described on the basis of a common set of characteristics.
The Bill introduces automatic and mandatory exchange of information on persons resident in other Member States with respect to their ownership of real estate assets. Such exchange will cover information on taxable periods from 1 January 2025. The Bill also enhances the rules for performing simultaneous controls and provides a framework for conducting joint audits with other EU Member States.
Finally, it introduces new rules on the mandatory automatic
exchange of information reported by digital platform
Mandatory automatic exchange of information reported by digital platform operators
The main proposed provisions introduce obligations for digital
platform operators to register in Luxembourg, to collect
information on income earned by sellers on their platforms and to
report that information to the Luxembourg tax authorities. The
Luxembourg tax authorities are obliged to automatically exchange
this information with the tax authorities of the relevant EU Member
States. The following paragraphs give a basic outline of the
Reporting platform operators must register with the Luxembourg tax authorities by 31 December 2023 or, after that date, at the time they start their activity.
The category of "reporting platform operator" includes any platform operator located in Luxembourg (e.g., tax resident or with a permanent establishment in Luxembourg). It also includes platform operators with no such link to Luxembourg or another Member State, located in jurisdictions that do not automatically exchange information with EU Member States, but that facilitate (i) the exercise of a relevant activity (i.e. the rental of immovable property located in the EU, personal services, the sale of goods or the rental of any mode of transport) by reportable sellers, or (ii) the rental of real estate located in a Member State.
"Excluded platform operators" must also register with
the Luxembourg tax authorities. This category includes platform
operators that demonstrate that they have no reportable sellers.
Reportable sellers are active sellers that are resident in a Member
State, or that have rented out immovable property located in a
Member State. A list of excluded seller types can be found in the
Bill (for example, listed entities).
Reporting and exchange of information
Reporting platform operators must carry out due diligence procedures and meet reporting obligations. By 31 December of the reporting period, they must collect certain information from reportable sellers, verify its reliability and then determine, on the basis of this information, the sellers' Member States of residence.
By 31 January of the year following the calendar year in which a reporting platform operator identifies a seller as reportable, the platform operator must report the information collected on that seller to the Luxembourg tax authorities. However, the platform operator is exempt from reporting this information if it has evidence that the same information has already been provided by another platform operator to the Luxembourg tax authorities, or to the competent authority of another Member State.
Reportable information includes inter alia details on reportable sellers, income earned from reportable activities, fees and commissions incurred, as well as specific information with respect to immovable property rental services. Platform operators must keep a record of the information collected for ten years following the reporting period, and must have the necessary procedures, controls, policies and IT systems in place for this purpose.
The Luxembourg tax authorities will automatically exchange the information on a reportable seller within two months following the end of the reporting period, in a standard computerised format, with the competent tax authority of the Member State in which the reportable seller is resident or in which the relevant immovable property is located, as the case may be.
Platform operators that inter alia fail to comply with their registration, notification or reporting obligations within the legal deadlines may incur a fixed penalty of 5,000 euros. They may incur a penalty of up to 250,000 euros if, following an inspection, they fail to comply with obligations under the Bill other than those listed above. The Luxembourg tax authorities may revoke the registration of a non-EU platform operator that does not comply with its reporting obligation and may request that it be prevented from operating in Luxembourg.
The Bill is largely in line with DAC 7: it is intended to strengthen administrative cooperation with other EU Member States and sets out new provisions that target the challenges posed by the digital platform economy, in which income earned through digital platforms often goes unreported, and the tax due on it unpaid.
The extended definition of "foreseeable relevance" is expected not to result in any substantial change to how the related rules are applied in Luxembourg. However, one could expect tax administrations to further develop the use of group requests for information under the new legal framework. This should be closely monitored by actors in the market.
The Bill will now follow the normal legislative process. The new rules will apply from 1 January 2023 onwards, save for the new framework on joint audits, which will apply from 1 January 2024.
This short timeline leaves players active in the digital platform economy an opportunity to assess the impact of the changes on their operations and internal processes.
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.