_Faced with the evolving complexity of tax-planning arrangements, on 8 August 2019, Mr Pierre Gramegna, Minister of Finance, filed the draft law n°7465 with the Luxembourg Parliament (the « Draft Law »). Said Draft Law aims to transpose into domestic law the Council Directive (EU) n°2018/822 of 25 May 2018 (the « Directive »), amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.
For financial intermediaries and other providers of tax advice, the Draft Law introduces in principle an obligation to file with the Luxembourg tax authorities (the « LTA ») certain cross-border arrangements involving several Member States or a Member State and a third country. This reporting obligation towards the LTA shall, in principle, be performed within 30 days, beginning the day after the reportable cross-border arrangement is made available for implementation, is ready for implementation or when the first step in implementing the reportable cross-border arrangement is made, whichever occurs first.
The information filed by intermediaries – or, as the case may be, by the relevant taxpayer – will then be automatically exchanged by the LTA with the tax authorities of the other Member States, in order to allow these States to react more quickly against potentially aggressive tax-planning arrangements.
The first exchange concerning the information on reportable cross-border arrangements should take place no later than 31 August 2020 for arrangements whose first step was implemented between 25 June 2018 and 30 June 2020.
Finally, it is worth mentioning that the Draft Law does not apply to (i) purely Luxembourgish arrangements or (ii) value-added tax, customs duties, compulsory social contributions or other taxes excluded from the scope of the Directive 2011/16/EU.
I. Reportable cross-border arrangements
Intermediaries – or, as the case may be, relevant taxpayers – will have to file any (i) cross-border arrangements that (ii) concern a direct taxation and (iii) contain at least one of the hallmarks set out in Annex IV to the Directive.
For example of hallmarks, it can be mentioned the arrangements that :
- involve a cross-border payment to a beneficiary residing in a country with zero or almost zero taxation;
- concern jurisdictions with inadequate or weak regimes of enforcement of anti-money-laundering legislation;
- establish a direct link between the fees invoiced by the intermediary and the savings realized by the taxpayer thanks to the tax advantage resulting from the arrangement;
- result in deductions claimed in more than one jurisdiction for the same depreciation of the asset;
- claim a relief from double taxation in respect to the same item of income or capital in more than one jurisdiction.
Under the Draft Law, a number of hallmarks will trigger an obligation of reporting only when the « main benefit test » (« MBT ») will be fulfilled. The MBT will be satisfied if it can be established that the main benefit, or one of the main benefits, which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage.
II. Intermediaries within the meaning of the Draft Law
The Draft Law defines an intermediary as « any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement ».
The Draft Law further specifies that an intermediary can be « 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, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement ».
Accordingly, banks, accountants, law firms, consultants and tax and financial advisers will qualify as intermediaries within the meaning of the Draft Law.
In addition, the Draft Law specifies that to be subject to this reporting obligation, the intermediary will have to be, among others, a resident for tax purposes in a Member State, or having a permanent establishment in a Member State through which the services with respect to the arrangement will be provided.
Any intermediary will have to file with the LTA information (see item III below) regarding reportable cross-border arrangements within 30 days.
It is worth mentioning that when there is more than one intermediary involved in the implementation of the arrangement, the obligation to file the information on the reportable cross-border arrangement will lie with all intermediaries involved in the same reportable cross-border arrangement. An intermediary shall be exempt from filing the information only to the extent that it has proof the same information has already been filed by another intermediary.
By way of exception, as permitted by the Directive, the Draft Law expressly states that « the intermediary who is subject to Article 35 of the amended law dated 10 August 1991 on the profession of lawyer is not required to transmit the information [see item III below] that is within his knowledge, possession or control on reportable cross-border arrangements ».
This exemption granted exclusively to a lawyer is welcome, given the fundamental role of solicitor-client privilege in Luxembourg.
As a lawyer is not bound by the reporting obligation, he or she will nevertheless have to convey the reporting obligations, within 10 days at the latest, to any other intermediary that will design, market or organize such a reportable cross-border arrangement, or in the absence of such an intermediary, to the relevant taxpayer.
In case the relevant taxpayer is the sole guarantor of the reporting obligation (e.g. in the absence of any other intermediary than his or her lawyer), the taxpayer may instruct the lawyer to perform the reporting obligations on his or her behalf.
On the other hand, even though the lawyer may avail himself of the exemption provided by the Draft Law, he or she will also have to comply with the obligation to file general information related to the reportable cross-border arrangement within 30 days, starting the day after each provision for the implementation of the reportable cross-border arrangement. The solicitor-client privilege is not affected by this requirement of the Draft Law because the information that the lawyer will have to file with the LTA will not be related to the client and the relevant taxpayer.
When the lawyer is the sole intermediary involved in the implementation of his or her client’s arrangement, the obligation to file the information on the reportable cross-border arrangement will be the exclusive responsibility of the relevant taxpayer, who will have 30 days to file this information with the LTA.
It is worth noting that in the absence of notification within the deadlines foreseen in the Draft Law, the lawyer will be liable, like any intermediary, for the penalties provided by the Draft Law (see item V below).
III. Information to be filed with the LTA
The information to be filed with the LTA contains the following, as applicable:
- a. the identification of intermediaries and relevant taxpayers, including their name, date and place of birth (in the case of an individual); residence for tax purposes; tax identification number; and, where appropriate, the persons that are associated enterprises to the relevant taxpayer;
- b. details of the hallmarks, set out in Annex IV to the Directive, that make the cross-border arrangement reportable;
- c. a summary of the content of the reportable cross-border arrangement, including a reference to the name by which it is commonly known, if any, and a description in abstract terms of the relevant business activities or arrangements, without leading to the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information the disclosure of which would be contrary to public policy;
- d. the date on which the first step in implementing the reportable cross-border arrangement has been made or will be made;
- e. details of the national provisions that form the basis of the reportable cross-border arrangement;
- f. the value of the reportable cross-border arrangement;
- g. the identification of the Member State of the relevant taxpayer(s) and any other Member States which are likely to be concerned by the reportable cross-border arrangement;
- h. the identification of any other person in a Member State likely to be affected by the reportable cross-border arrangement, indicating to which Member States such person is linked.
IV. First exchange of information
Intermediaries and relevant taxpayers will be required to provide by 31 August 2020 the information on reportable cross-border arrangements, the first step of which must be implemented between 25 June 2018 and 30 June 2020.
The first automatic exchange of information with the tax authorities of other Member States is scheduled for 31 October 2020 at the latest. This exchange will then be renewed quarterly.
Each relevant taxpayer will also be required to report in their tax returns their use of the arrangement in each of the years they use it.
In the event of failure to file information, late filing, or incomplete or inaccurate data filing – or in the event of failure to notify or late notification – the intermediary or the relevant taxpayer having a reporting obligation or notification may incur a fine of up to EUR 250,000.
An appeal against this fine before the Luxembourg Administrative Tribunal in favour of the intermediary or the relevant taxpayer is allowed under the Draft Law.
The Draft Law aims to make a fair transposition of the Directive. The measure provided by the Draft Law which aims to exempt Luxembourg lawyers from the obligation to file information concerning their clients is legitimate. Special attention will have to be paid by any taxpayer who set up an arrangement whose first step was implemented as of 25 June 2018.
The deadline for the transposition of the Directive is 31 December 2019, so a Draft Law should be passed by the Chamber of Deputies by the end of 2019.
For further information (e.g. to find out whether an arrangement you have set up or for which you have been advised falls within the Draft Law’s scope, the information you will have to file with the LTA and who will be responsible for the filing, etc.), do not hesitate to contact our tax team.
 Cross-border arrangements whose purpose is direct taxation and containing at least one of the hallmarks listed in Annex IV to the Directive.
 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 Draft Law does not currently provide for an exchange of information with countries outside the European Union.
 Beginning on the day after the reportable cross-border arrangement is made available for implementation, is ready for implementation or when the first step in the implementation of the reportable cross-border arrangement is made, whichever occurs first.
 The lawyer will have to file, among others, the identification of intermediary, details of the hallmarks and a summary of the content of the reportable cross-border arrangement without disclosing the client’s identity.