This report highlights that taxpayers in Luxembourg have only until the end of December to file corrective tax returns under the temporary tax amnesty regime.
Individuals subject to income tax in Luxembourg have been given the opportunity to file corrective tax returns until 31 December this year, under the temporary tax amnesty regime.1
The remaining six months of the amnesty program can be seen as a “last call” for taxpayers who heretofore have failed to report undeclared income (and related assets) to the Luxembourg tax authorities.
Affected taxpayers who do not “regularize” their tax affairs with the authorities could face increased risk of being reported and may face criminal charges in court.
The tax amnesty regime, until it expires, stipulates that “normal” sanctions (i.e., sanctions that otherwise apply to tax fraud and non-intentional tax evasion) will not apply, if the taxpayer duly regularizes his or her situation.
This regime was first introduced by the Law of 23 December 2016. It was intended to encourage delinquent or neglectful taxpayers to take steps to regularize their tax affairs. The motivation behind the legislation was to help prevent fraud and tax evasion and to inhibit money laundering.
Under the new rules introduced in the 2017 tax reform package, so-called “aggravated” and “serious” tax fraud will constitute offenses equivalent to money laundering.
Luxembourg banks will be obliged to review their entire client population in light of fraud risk. Where banks have reasonable suspicion that failure to declare income is a (serious or aggravated) tax fraud, they will have to report those taxpayers to the State Prosecutor's Office. Therefore, concerned taxpayers who do not regularize their fiscal affairs could face increased risk of being reported and may face criminal charges in court.
Generally speaking, the tax amnesty is offered to all taxpayers that have failed to report taxable income or otherwise obtained undue tax advantages or caused a reduction of tax revenues within the past 10 years. Such taxpayers may be individuals or companies, Luxembourg resident or nonresident.
The tax amnesty provides protection against sanctions which otherwise apply to the relevant tax offences. In the case of:
In addition, according to § 396 General Tax Law, a surcharge penalty of 20 percent can be applied on the tax due when regularizing one’s tax affairs. When regularizing under the tax amnesty, the tax authorities will assess the return, and, then, notify the tax bill to the taxpayer – this is comparable to the ordinary tax assessment the taxpayer receives every year. The tax amnesty requires the payment be made in full and within one month from receipt of the tax bill.
In order to benefit from the tax amnesty, concerned taxpayers have to file a single amended tax return. This so-called “regularization return” is “unique,” i.e., it must cover all the relevant years, all the relevant taxes (income tax, net wealth tax, VAT, inheritance tax, etc.), and all items of undeclared income (assets).
The regularization return has to meet certain criteria to be in proper compliance; failing to meet such criteria could mean the application of sanctions.
The regularization return must be filed before 31 December 2017. Corrective filings after this deadline are likely to trigger the “normal” sanctions applicable, above-mentioned.
Taxpayers who may choose to regularize their tax affairs under the amnesty should be aware that the regularization return requires adequate preparation time and although 31 December seems like a long time away, taxpayers would be advised to consult with their qualified tax professional and get the process started as soon as possible.
1 Tax amnesty: Article 4 de la loi du 18 décembre 2015 concernant le budget des recettes et des dépenses de l’État pour l’exercice 2016 et introduisant un § 489 dans la loi générale des impôts modifiée du 22 mai 1931.
Aggravated tax fraud: Articles 7 et 13 de la loi du 23 décembre 2016 portant mise en oeuvre de la réforme fiscale 2017 et portant modification des §§ 396 et 402 de la loi générale des impôts du 22 mai 1931 («Abgabenordnung») et de l’article 29 de la loi modifiée du 28 janvier 1948 tendant à assurer la juste et exacte perception des droits d’enregistrement et de succession.
Full text (electronic version) of the law (in French) as published in Mémorial A n° 274 de 2016 (27 décembre 2016)
The information contained in this newsletter was submitted by the KPMG International member firm in Luxembourg.
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