On 21 March 2020, the Luxembourg Parliament passed bill 7465 on the transposition of the amended European (EU) Directive on administrative cooperation in the field of taxation (DAC 6) into Luxembourg domestic tax law.
Parliament also passed bill 7505 ratifying the new protocol to the double tax convention between France and Luxembourg. A request to be exempted from the second vote was filed with the State Council.
DAC 6 transposition law (“the Law”)
DAC 6 introduces a new obligation for EU intermediaries — and sometimes taxpayers — to disclose certain cross-border arrangements to local tax authorities that are then shared with other EU tax authorities.
The Law mostly reflects DAC 6’s wording. However, compared to the text in the original bill issued on 8 August 2019 — to learn more, please refer to this tax alert — there are some significant amendments regarding legal professional privilege based on the State Council’s opinion. In addition, useful clarifications have also been included.
Legal professional privilege/professional secrecy
The original bill of 8 August 2019 only permitted a reduced reporting obligation for lawyers protected by client-attorney privilege. Under this light reporting obligation, lawyers had:
To address the State Council’s formal opposition to limiting legal professional privilege to lawyers only — as they are not the only profession covered by professional secrecy under Luxembourg law — and to align its provisions with the Luxembourgish Constitution, the Law now extends this legal professional privilege to chartered accountants and auditors.
In addition, for intermediaries benefitting from professional secrecy, the no-name-basis reporting is replaced by an exemption from any kind of reporting. Instead, these intermediaries are only required to notify any other intermediary that is not protected by professional secrecy, or the taxpayer in the absence of such an intermediary, within 10 days. If a taxpayer is notified, the intermediary must also include any necessary information required for reporting — in enough time for the taxpayer to meet their reporting obligation deadline and to the extent that the intermediary has this information at their disposal. Taxpayers may also appoint the intermediary to perform the reporting on their behalf.
Participant to the arrangement
An arrangement is deemed as cross-border if it involves several Member States or a Member State and a third-country, if certain specific conditions are met regarding the arrangement’s participants. However, the Law does not define the notion of “participant” to the arrangement.
In response to the State Council’s opinion, the Luxembourg Finance and Budget Commission (COFIBU) has clarified that an intermediary is not a participant to an arrangement. This is because a participant is deemed to have an active role in the arrangement — while an intermediary exclusively designs, markets, organizes, makes available for implementation or manages the implementation of a cross-border arrangement.
For example, the Law does not recognize an arrangement as cross border if there are no EU participants involved, even if it has an EU intermediary. And the same applies if the participants to the arrangement reside in the same country that is not Luxembourg, even if the intermediary has a link to Luxembourg.
However, this principle does not apply when the cross-border arrangement may impact the automatic exchange of information or the identification of beneficial owners, as the concept of participants is disregarded in these situations.
Main Benefit Test (MBT)
In line with DAC 6, cross-border arrangements are reportable if they fall within the scope of one or several hallmarks of the Law, which may require the application of the MBT. The Law’s MBT definition is the same as the DAC 6’s. Bill 7465’s commentaries further clarify the scope of the MBT, which also takes tax advantages into account that are obtained outside of the EU.
According to the COFIBU, this test is not met when the principal tax advantage obtained by means of the arrangement is in accordance with:
To determine whether the MBT is fulfilled, all of the arrangement’s constitutive elements must be taken into consideration. For example, if the arrangement takes advantage of subtle nuances in the tax system or discrepancies between different tax systems to reduce the tax burden, then the MBT should be met.
Now that the Luxembourg Parliament has passed the Law, the reporting form will need to be made available soon. So, stay tuned!
KPMG Luxembourg’s comment
The countdown is on!
KPMG provides tailor-made solutions to get you DAC 6 ready, including impact analysis, readiness training and customized workshops that cover an array of subjects.
And our innovative MDR IT solution — the KPMG DAC 6 processor — is also at hand to help you categorize arrangements, monitor deadlines and streamline the reporting process based on EU-wide domestic rules.
Stay ahead of the curve — get in touch today!
New protocol to the Luxembourg-France double tax convention
The aim of bill 7505 is to approve a protocol to the France-Luxembourg double tax convention to avoid double taxation and prevent income and capital tax fraud and evasion.
The protocol, signed on 10 October 2019 in Luxembourg, proposes to modify the French method of eliminating double taxation in article 22 of the France-Luxembourg tax convention of 20 March 2018.
This modification, which mainly affects cross-border residents who live in France but are paid an income in Luxembourg, will no longer use the method of imputation of the Luxembourg tax — but the exemption with reserve of progressiveness in another form method instead. In other words, the allocation of tax credits against French tax will not correspond to the Luxembourg taxes on Luxembourg source income.
The protocol foresees that the tax credit applied will correlate to the amount of French tax corresponding to the income received in Luxembourg — which is the equivalent to an exemption from this income in France.
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