DAC 6 - Disclosure for certain cross-border arrangements Luxembourg bill now available

09/08/19

In brief

On 8 August 2019, the Luxembourg Government tabled a Bill (n°7465) before the Luxembourg Parliament setting out draft legislation (the “Draft Law”) that will implement the Directive (EU) 2018/822 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (commonly referred as "DAC 6"). EU Member States have until 31 December 2019 to transpose the measures in DAC 6 into their domestic laws, and must apply those provisions from 1 July 2020.
The first reportable transactions will however be those whose first implementation step occurs between 25 June 2018 and 1 July 2020. This information will then have to be reported to tax authorities by 31 August 2020.
This Draft Law now needs to go through the Luxembourg legislative process, and may be subject to amendments before final voting by the Luxembourg Parliament.
The Draft Law follows the text of DAC 6 rather closely.

In detail

Principles

DAC 6 makes it mandatory for intermediaries (or taxpayers, if there is no intermediary, or if intermediaries are subject to professional secrecy as defined by the Member States’ domestic laws) to report some cross-border transactions and arrangements to the domestic tax authorities, and will trigger the subsequent automatic exchange of information to tax authorities of all EU Member States through access to a central directory.

The Luxembourg Government has opted to make a straightforward transposition of the Directive, i.e. the scope of the reporting obligation is not “gold-plated” and extended beyond what is required by the Directive. As matters of example, no reporting will therefore be applicable in relation to purely domestic arrangements, and all taxes are in scope except VAT, customs duties, excise duties, compulsory social security contributions and fees for documents issued by the public authorities or consideration paid for public services.

Notion of intermediaries

For the purposes of DAC 6 and of the Draft Law, an intermediary is defined as

  • Any person that designs, markets, organises, makes available for implementation, or manages the implementation of a reportable cross-border arrangement (so-called “Promoters”); and
  • Any person that knows or could be reasonably expected to know (based on facts, circumstances, available information and the relevant expertise and understanding) that they have undertaken to provide – directly or by means of another person – aid, assistance or advice in relation to the services described above (so-called “Service providers”). As a matter of example, the Commentary to the Draft Law confirms expressly that a bank may be an intermediary.

In addition, the intermediary needs to have a EU nexus – e.g., to be resident for tax purposes in a Member State, or to have a permanent establishment in a Member State from where the person provides the services with respect to the arrangement.

In any case where the intermediary is entitled to legal professional privilege, or does not have an EU nexus, the disclosure obligation is shifted to other intermediaries or to the relevant taxpayer (if the obligation to disclose is not enforceable upon any intermediary). Based on the Draft Law, lawyers acting within the limits applicable to the exercise of their profession enjoy a limited waiver of their reporting obligations. They remain liable to provide the tax authorities with information linked to the reportable cross-border arrangement (but without any client-specific information). They also have the obligation to inform, within 10 days, other intermediaries or the taxpayer of their respective reporting obligation following the partial waiver applying to the lawyer.

Hallmarks and Main Benefit Test

Cross-border arrangements may be reportable if they meet at least one of the “hallmarks” set out in the Draft Law, which is identical in wording to the list of hallmarks in Appendix IV of DAC 6. These hallmarks may be generic or specific.

Generic hallmarks, and a number of specific hallmarks, may only need to be considered if they meet the so-called “main benefit test” or “MBT”. This will be the case if obtaining a tax advantage is the main benefit, or one of the main benefits, that a person is expecting to derive from an arrangement. The Draft Law takes the position that the tax advantage may either be obtained in the EU or in a third country, and that it is an objective test.

Timing of reporting

Reportable cross-border arrangements whose first implementation step occurs between 25 June 2018 and 1 July 2020 are to be reported as from 1 July 2020, and by 31 August 2020 at the latest.

As from 1 July 2020, there is a thirty-day turnaround period to report to the domestic tax authorities.

The information to be reported matches that listed as to be exchanged between tax authorities, as specified in DAC 6. The Draft Law does not include a template form for the reporting.

Tax return obligation

In addition to the specific reporting form (to be filed by the intermediary or the relevant taxpayer in some cases), each relevant taxpayer is required to file, in their Luxembourg corporate tax return, information about their use of the arrangement in each of the years for which they use it.

Penalties

DAC 6 required Member States to lay down rules on effective, proportionate and dissuasive penalties for failure to comply with its provisions. Luxembourg proposes to set these penalties up to a maximum of EUR 250 000. The amount of the penalty will be determined on a case-by-case basis. The Commentary to the Draft Law indicates that the intentional character (or not) of the breach will be considered when fixing the amount of the fine. The intermediary or the taxpayer has to possibility to file a recourse in front of the Tribunal against the amount of the fine.

In conclusion

As mentioned above, the Draft Law does not expand the scope of the reporting obligation beyond what was required by DAC 6. This is welcome.

We regret however the absence of any further guidance from tax authorities on the interpretation and application of the hallmarks. There is no indication whether such guidance will be issued later on, but in advance of the date of application (1 July 2020). A prudent approach should therefore be taken when tracking and collecting information on transactions that are potentially reportable.

Our PwC team combines experts in tax, people, processes, data and technology. By bringing together these different skill sets, we can help you to understand DAC 6, and the broader tax policy context, and implement effective controls and processes to ensure all reportable cross-border arrangements are proactively identified and managed.

1. Impact assessment: We can analyse your current and planned activities so that you understand the impact the DAC 6 legislation has on your reporting obligations.

2. Governance framework: We can help you to develop a comprehensively documented governance framework to define roles and responsibilities with respect to reporting obligations, and to identify and manage risks.

3. Data management: We can support you in the effective and efficient collation, analysis and storage of reportable data.

4. Reporting: Using technology, we can assist you to fulfil multiple reporting requirements using a consistent data set and a reporting mechanism in the required format, and with preparing the necessary paperwork.

1. PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,870 people employed from 76 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused approach.

2. The PwC global network is the largest provider of professional services in the audit, tax and management consultancy sectors. We are a network of independent firms based in 158 countries and employing over 250,000 people. Talk to us about your concerns and find out more by visiting us at www.pwc.com and www.pwc.lu.

Contact us

Sami Douénias

Tax Partner, PwC Luxembourg

Tel: +352 49 48 48 3060

Alina Macovei

Tax Partner, PwC Luxembourg

Tel: + 352 49 48 48 3122

Alina Cristina Muntean

Tax Partner, PwC Luxembourg

Tel: +352 49 48 48 3167

Alexandre Jaumotte

Tax Partner, PwC Luxembourg

Tel: +352 49 48 48 5380

Guy van der Heyden

Tax Partner, PwC Luxembourg

Tel: +352 49 48 48 3182

Murielle Filipucci

Tax Partner, PwC Luxembourg

Tel: +352 49 48 48 3118

Pierre Kirsch

Managing Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 4031