DAC6 Implementation Into Luxembourg Law: Who Has To Report What To Whom, How And When?

What's DAC 6?

DAC6 is the name commonly given to Directive 2018/822 of May 25, 2018 amending Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation in relation to reportable crossborder arrangements, which entered into force on June 25, 2018, and must be implemented by EU member states before December 31, 2019, to be applied as of July 1, 2020 (hereafter referred to as the Directive or DAC6).

In a nutshell, DAC6 introduces a new set of transparency measures by requiring intermediaries or, in the absence of an intermediary, the relevant taxpayer, to report on potentially aggressive crossborder tax-planning arrangements they are involved in to their relevant tax authorities and by setting out rules for the subsequent exchange of this information between tax administrations.

Consistent with Action 12 of the Base Erosion and Profit Shifting (BEPS) initiative proposed by the Organization for Economic Co-operation and Development (OECD), DAC6's objective is to tackle tax avoidance and evasion. DAC6 aims to enable tax authorities to deter harmful practices or to detect potential risks of avoidance or loopholes early and address them through effective audits or adequate reforms.

On August 8, 2019, the Luxembourg government submitted to the Luxembourg parliament a draft law implementing DAC6 into the national law. The Luxembourg draft law mirrors the text of DAC6 and does not extend the reporting obligation to domestic arrangements. The arrangements concerning "indirect" taxes (i.e. value added tax, custom duties, excise duties and compulsory social security contributions) remain out of the scope of this mandatory disclosure regime.

Why this paper?

The purpose of this paper is twofold: (i) outline the Luxembourg legislative proposal and (ii) shed light on how this new disclosure regime will affect intermediaries and taxpayers in Luxembourg.

Answering the different pieces of the following question should help explain DAC6 and its implications: Who has to report what to whom, how and when?

Who?

The disclosure obligation is on intermediaries in the first instance.

An intermediary is broadly defined under DAC6 as "any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement".

Intermediary also means "any person that, having regard to the relevant facts and circumstances and based on available information and the...