Luxembourg Publishes Draft Law On DAC 6

On 8 August 2019, Luxembourg published its draft law for the transposition of the 6th Directive on Administration Cooperation, 2018/822, ("DAC 6")1.

This directive is the latest effort by the EU to increase tax transparency and information exchange as well as combat what the EU perceives as aggressive tax planning and tax avoidance, by means of mandatory disclosures to EU Member State's tax authorities and the creation of a central database of transactions.

DAC 6 requires intermediaries and in some cases even taxpayers (if there is no intermediary or if the intermediary is bound by professional secrecy) to report certain cross border arrangements to the Luxembourg tax authorities.

DAC 6 Reportable Cross Border Arrangements

A reportable cross border arrangement must involve at least one EU member state (with or without a third country), and meet one or more hallmarks which can be either 'generic' or 'specific' hallmarks.

The draft Luxembourg law follows closely the DAC 6's categories of reportable cross border arrangements.

Some of the categories require that the 'main benefit test' must be fulfilled with a combination of one of the listed hallmarks. The main benefit test is fulfilled if the main benefit or one of the main benefits of the arrangement is to obtain a tax advantage either in the EU or even in a non-EU jurisdiction. The draft law clarifies that each test shall only apply to direct taxes and excludes VAT and other indirect duties.

Intermediaries Broadly Defined

Intermediaries are broadly defined and include any person who designs, markets, organises, or otherwise makes available for implementation, a reportable cross border arrangement, as well as any person that, regarding all facts and circumstances, knows or could reasonably be expected to know that they have provided, directly or by means of other persons, aid, assistance or advice with respect to such arrangements. Intermediaries can include lawyers, accountants, trust management advisors, consultants, and bankers.

The draft law...