DAC 6: amendments to the Luxembourg draft bill (n°7465)
On June 25, 2018, the EU Directive 2018/822 (hereafter the “Directive”, also known as “DAC6”) which amends the Council Directive 2011/16/EU on Administrative Cooperation entered into force.
DAC6 aims to clamp down on aggressive tax planning and to achieve a greater transparency among EU Member States. DAC6 is set to impose a huge compliance burden on taxpayers and their advisers in order to facilitate an early identification by the relevant EU tax authorities of potential harmful tax arrangements and to ensure a rapid adaptation of tax laws in view of preventing Base Erosion and Profit Shifting (BEPS).
In that respect, DAC6 requires intermediaries (and in some cases the taxpayers) to disclose information on certain cross-border arrangements featuring at least one indicator of aggressive tax planning. An arrangement which meets at least one of the specific hallmarks described in the Directive (the “Mandatory Disclosure Rules” or “MDR”), must be automatically reported to the relevant EU tax authorities.
DAC 6 is applicable among EU Member States from July 1, 2020 and the first exchange of information will take place on October 31, 2020. It should be noted that, although the Directive is applicable as from July 1, 2020, all tax reportable arrangements implemented in between June 25, 2018 and June 30, 2020 must also be automatically disclosed before or on August 31, 2020 at the latest.
The original bill n°7465 (“the Bill”) introducing the Directive under Luxembourg law, which was published on August 8, 2019, has been recently amended by the Commission of Finance on February 14, 2020, following some concerns raised by the State Council mainly regarding the incompatibility of the Bill (i) with different laws introducing professional secrecy for some professionals and (ii) with the Constitution as regards the authority which is competent for organizing the procedure of data transmission.
The amended features of the Bill are:
- Full exemption for lawyers, chartered accountants and auditors where professional secrecy applies
In its original version, the Bill imposed a reporting obligation on all intermediaries (i.e. Any person that designs, markets, organizes or makes available for implementation or manages the implementation of a reportable cross-border arrangement”).
Lawyers, to the extent they were/are acting within the limits of their activities and they were/are covered by their professional secrecy, could disclose the reportable arrangements on a no name basis (i.e. without revealing the name of their client).
The State Council objected that such reporting would still violate the professional secrecy of the lawyers (article 35 of the law of August 10, 1991 as amended) as the taxpayer could possibly be identified based on the disclosed information.
The State Council further argued that the exemption should also apply to other intermediaries who are subject to professional secrecy such as auditors and chartered accountants, to ensure a fair treatment of practitioners bound by similar rules.
The Commission of Finance agreed with the position taken by the State Council. The amended Bill now includes auditors and chartered accountants alongside the lawyers in the list of intermediaries who are not obliged to report cross-border arrangements themselves.
- Transfer of the obligation to a non-exempted intermediary or to the taxpayer where professional secrecy applies.
Consistent with the section above, the amended Bill specifies that the exempted intermediary is obliged to notify all non-exempted intermediaries (or the taxpayer in the absence of other intermediaries) that the reporting obligation is transferred over to them. The notification must occur within 10 days after (i) the arrangement is made available for implementation, or (ii) is ready for implementation, or (iii) once the first steps have occurred (whichever comes first).
Non-exempted intermediaries would likely be Banks, Trust Companies, Insurance Companies, Holding Companies, Accountants, Consultants, Financial advisors, Private Equity Companies, etc.
Failing to notify the non-exempted intermediaries (or the taxpayer) within 10 days will expose the exempted intermediary to a penalty of up to 250,000 EUR.
- Procedure of transmission of data determined by a Grand-Ducal Decree
In its original version the Bill stated that the procedure would be implemented by the Luxembourg tax Administration (Administration des Contributions Directes).
The State Council brought to the attention of the Commission that such should rather be determined by a Grand-Ducal Decree, pursuant to art 36 of the Constitution. The Bill has been amended accordingly.
How can we help?
Whether you are a taxpayer or an intermediary on whom the reporting obligation falls, we can help you become DAC6 compliant right from July 1, 2020.
We have the professional skills to help you:
- identify the arrangements which fall within the scope of DAC6
- gather all the relevant documentation related to such arrangements, starting with those implemented since June 2018
- propose tailormade solutions for your business considering your size, your structure and the number of cross-border arrangements involved.
Should you have further questions please contact Christine Ntumba (Tax Partner):
Phone (Lux) : +352 26 20 37 51
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