DAC6 – Luxembourg Implements The New Reporting Obligations Of Tax Intermediaries

On Saturday 21 March 2020, the Luxembourg parliament passed the law implementing the Council Directive (EU) 2018/822 of 25 May 2018 ("DAC6") regarding the mandatory exchange of information in the field of taxation in relation to reportable cross-border arrangements.

As expected, the wording of the law largely resembles the wording of DAC6 and the commentaries to the draft law provide few explanations on how it will be interpreted and applied in practice. Therefore, some of the rather vague terms and concepts used in DAC6 will continue to give rise to uncertainty and will require interpretation.

The investments and business activities of Luxembourg companies often have a cross-border dimension. In these cases, the question needs to be answered whether a particular piece of advice, or involvement in implementation, is reportable. This article provides a clear and concise overview of the new mandatory disclosure regime and the mechanism that triggers reporting obligations.

What type of arrangements will need to be reported?

Under the law, EU tax intermediaries such as tax advisers, accountants and lawyers who design and/or promote tax planning schemes will have to report potentially aggressive tax planning cross-border arrangements to the tax authorities.

The term "arrangement" may also include a series of arrangements, and an arrangement may comprise of more than one step. Hence, the understanding of the term within the meaning of the law is very broad. An arrangement is considered as cross-border if it concerns either (i) more than one EU Member State, or (ii) an EU Member State and a third country.

Cross-border arrangements may be reportable if they contain at least one of the hallmarks listed in an annex to the law. These hallmarks describe characteristics or features of cross-border arrangements that might present an indication of a potential risk of tax avoidance.

Certain hallmarks must fulfil a Main Benefit Test ("MBT"). The law provides that this test will be satisfied if "it can be established that the main benefit or one of the main benefits which a person may reasonably expect to derive from an arrangement, having regard to all relevant facts and circumstances, is the obtaining of a tax advantage."

The law shall apply to all "direct" taxes of any kind levied by or on behalf of a Member State or the Member State's territorial or administrative subdivisions, including the local authorities, but also by a third country. However, this...