Asset Managers: Are You On Track To Meet The DAC 6 Deadline?

Mandatory Disclosure Rules (MDR) emerged following the OECD's ambitious anti-tax avoidance project on Base Erosion and Profit Shifting (BEPS) launched in 2015.

Also known as DAC 6, it is the latest EU initiative regarding the automatic exchange of tax information. Aimed at identifying harmful tax practices and further increasing tax transparency, MDR will impact various intermediaries (including asset managers) involved in cross-border arrangements, and their investors.

In 2018, roughly 97% of net assets under management in Luxembourg were derived from initiators outside of the Grand Duchy, meaning MDR could lead the Luxembourg fund business to over-disclose.

What Asset Managers Need to Know

1. Key dates

   8 August 2019 - Luxembourg issues the draft law transposing the MDR Directive into domestic law 31 December 2019 - deadline for local transposition 1 July 2020 - MDR Directive applicable 31 August 2020 - deadline for reporting of information regarding cross-border arrangements implemented between 25 June 2018 & 1 July 2020 2. How will it work?

   Luxembourg intermediaries (or taxpayers) will have to report predefined cross-border arrangements they assist with (or benefit from) if these arrangements satisfy at least one of the features (referred to as "hallmarks") listed in the MDR Directive.

   These arrangements must be reported to the Luxembourg Tax Authorities within 30 days, from the day the arrangement is made available or is ready for implementation by the taxpayer. In turn, on a quarterly basis, the Luxembourg Tax Authorities must share this information through a centralized database with all other EU member states. Some of this information will also be disclosed to the EU Commission.

3. Is an asset manager an intermediary?

   The reporting obligation applies to all Luxembourg intermediaries unless they are protected by a legal privilege (e.g. attorney-client privilege), an option (partially) taken by the Luxembourg legislator and further detailed in the draft law.

   An asset manager can be an intermediary if it is a promoter or service provider of a reportable arrangement.

   Regarding the term promoter, according to the draft law, an intermediary is "any person that designs, markets, organizes or makes available for implementation or manages the implementation of a reportable cross-border arrangement."

   Regarding the term service provider, an intermediary also includes "any person that knows or could be reasonably expected to know that they have...