DAC 6 implementation in Luxembourg: What's important?


Who needs to report?

In essence, the intermediary or the relevant taxpayer, both within the meaning of the DAC 6 Law, will have to report. Specific rules exist in the context of potential multiple reporting obligations, i.e., when multiple intermediaries or taxpayers are involved.

1.1 The intermediaries

(a) General rule

DAC 6 and the DAC 6 Law aim at targeting mainly the intermediaries, which is thus a key concept to be understood. The definition of intermediary by the DAC 6 Law has largely been inspired by the one of DAC 6 and is very large. It targets two kinds of intermediaries, being:
  • any person who "designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement", and
  • any person who, "having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement".

In a nutshell, the first category of these two types of intermediaries covers the so-called promoters, who arrange and make available a reportable arrangement (the "Promotors"), whilst the second one involves the so-called service providers, who provide assistance or advice in this context (the "Service Providers"). 

The DAC 6 Bill commentaries specify that the latter category includes not only advisors themselves but also any other intermediary assisting in the context of a reportable arrangement such as accountants or banks. 

Ambiguities seem to remain within the notion of intermediary. For instance, how is the concept of "persons who not only know but could merely be reasonably expected to know that they provided aid, assistance or advice in relation to designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement" within the definition of Service Providers to be understood. Also considering the commentaries of the DAC 6 Bill, which specify that DAC 6 does not impose on intermediaries or taxpayers any specific obligation beyond their existing professional obligations to seek actively information, which they would not have had in their possession in the first place. As pointed out by the opinion of the Luxembourg Chamber of Commerce Chamber in relation to the DAC 6 Bill (the "Chamber of Commerce Opinion"), such uncertainties may be of particular relevance for some Luxembourg key business industries, such as the insurance or the investment fund sector, which both involve an important number of intermediaries such as for instance management companies, depositary banks, transfer agents or investment advisors. 

Helpful may be in this context the right given by the DAC 6 Law, in line with DAC 6, to any person to provide evidence that they did not know and could not reasonably be expected to know that they were involved in a reportable arrangement. For this purpose, that person may refer to all relevant facts and circumstances as well as available information and their relevant expertise and understanding. This carve-out, whilst being useful, might nevertheless be difficult to put in practice and further guidelines in this respect may be helpful. 

Doubts remain also in relation to employees. For instance the UK, had in its bill implementing DAC 6 explicitly excluded employees; as such, only the employers will have to proceed to the reporting (if applicable). This exemption, even though not explicitly foreseen by DAC 6, seems extremely helpful as an uncertainty remains for banks, accounting or law firms, domiciliation agents and alike, whether any of their employees has, besides the entity itself, a reporting obligation if they could be considered as having been involved in the providing of any aid, assistance or advice in the context of a reportable arrangement. 

In this respect, it seems unfortunate that the DAC 6 Law did not clarify that an employee or partner of a legal person or entity is not itself subject to reporting but only the legal person or entity itself, as for instance also proposed by the Luxembourg Bar Association in its opinion in relation to the DAC 6 Bill. Indeed, an exclusion from the definition of Service Providers of not only "mere" employees, who follow instructions of partners, senior managers or alike but also the latter generally would have been extremely helpful to avoid a mass duplication of the same reporting, respectively a burdensome administrative procedure for such legal persons or entities to assure that their employees may rely on their own reporting. Further, such approach would have had the advantage to confirm the intention that those persons are not at risk to be subject to the severe sanctions foreseen by the DAC 6 Law.

Notwithstanding the above, an intermediary within the meaning of the DAC 6 Law will only be obliged to report to the Luxembourg tax authorities if Luxembourg is the EU Member State* that features first in the list below: 

  • the intermediary is resident for tax purposes in Luxembourg; 
  • the intermediary has a permanent establishment in Luxembourg from which services with respect to the reportable arrangement are provided; 
  • the intermediary is incorporated in or governed by Luxembourg laws; or
  • the intermediary is registered with a Luxembourg professional association related to legal, taxation or consultancy services.

In case of multiple reporting obligations in more than one EU Member State according to the rules laid down above, any intermediary shall be exempt from filing the information in Luxembourg if it has proof that the same information has been filed in another EU Member State.

However, the practical implication of these rules does not always seem obvious. For instance, how should this rule be applied in case of a Luxembourg intermediary, incorporated and resident for tax purposes in Luxembourg, which would provide services with respect to a reportable arrangement via a permanent establishment located in another EU Member State? Would this be a situation whereby the intermediary would have to perform multiple reporting obligations in more than one EU Member State? In such a situation, what kind of proof would have to be provided to Luxembourg to assure that the same information has been filed in another EU Member State? The DAC 6 Bill commentaries provide the example of a written statement of the competent authorities of such other EU Member State; however, this may not be easy in practice, and considering the short period in which an intermediary needs to report, the use of such exemption does seem doubtful.

(b) Exception

Luxembourg has taken advantage of the possibility, provided by DAC 6, to waive the reporting obligations where such reporting would breach a professional secrecy privilege. The DAC 6 Bill firstly targeted Luxembourg lawyers registered with the Luxembourg bar but further to the formal opposition of the Luxembourg State Council, this exemption has been extended to all intermediaries subject to professional secrecy, as such including, besides lawyers, also certified accountants and independent auditors in line with the approach taken in, for example, Belgium, Austria and France. 

As underlined by the State Council in its opinion, such extension was required as potentially leading otherwise to an unjustified treatment between tax advisors. 

This exception is however not applicable if such professionals act beyond the limits of their professional activities.

In line with DAC 6, such professionals acting under a professional secrecy privilege will need however to notify any other relevant intermediary (itself subject to reporting), and if there is none, the taxpayer itself. In the latter scenario, the professional will in addition have to provide the taxpayer with all relevant information to be reported to the Luxembourg tax administration. 

1.2 The relevant taxpayer

In case no intermediary is subject to reporting under the DAC 6 Law, or in presence of merely professionals benefitting from a professional secrecy privilege, the taxpayer itself has to proceed to the appropriate reporting with the Luxembourg tax authorities. Hence, even if DAC 6 and the DAC 6 Law aim to impose on mainly intermediaries certain reporting obligations, taxpayers themselves may in some cases be subject to such reporting obligations.

In the context of the DAC 6 Law, the relevant taxpayer means "any person to whom a reportable arrangement is made available for implementation, or who is ready to implement a reportable arrangement or has implemented the first step of such an arrangement."

Notwithstanding the above, a taxpayer within the meaning of the DAC 6 Law will only be obliged to report to the Luxembourg tax authorities if Luxembourg is the EU Member State that features first in the list below: 

  • the taxpayer is resident for tax purposes in Luxembourg; 
  • the taxpayer has a permanent establishment in Luxembourg benefiting from the reportable arrangement; 
  • the taxpayer receives income or generates profits in Luxembourg, although such taxpayer is not resident for tax purposes and has no permanent establishment in any EU Member State; or
  • the taxpayer carries on an activity in Luxembourg, although such taxpayer is not resident for tax purposes and has no permanent establishment in any EU Member State. 

In case of multiple reporting obligations in more than one EU Member State according to the rules laid down above, any taxpayer shall be exempt from filing the information in Luxembourg if it has proof that the same information has been filed in another EU Member State.

However, the practical implication of these rules does not always seem obvious. We refer to the considerations detailed under point 1.1(a) above about intermediaries, who are subject to similar rules.

1.3 Specific rules in the presence of multiple intermediaries / taxpayers

Questions may arise in the context of multiple intermediaries / taxpayers that need to report in the same jurisdiction. The DAC 6 Law provides for specific rules to deal with such potential multiple reporting obligations.

(a) Multiple intermediaries in Luxembourg

In case the same reportable arrangement needs to be reported in Luxembourg by more than one intermediary, the general rule is that the obligation to file information on the reportable arrangement lies with all intermediaries involved; as such, they all will have to report. However, an intermediary shall be exempt from filing the information if such intermediary can prove that the Reportable Information has already been filed by another intermediary.

Absence of any further information, there are however uncertainties regarding the type of proof and the format under which it has to be provided in order for this exemption to apply. Considering the penalties at stake, it is likely that the proof will need to be given under a written format (as for multiple reporting in EU Member States as explained in the DAC 6 Bill commentaries). 

(b) Multiple taxpayers in Luxembourg

In case the same reportable arrangement needs to be reported in Luxembourg by more than one taxpayer (i.e., in the absence of intermediaries or the mere presence of professionals benefitting from a professional secrecy privilege), the relevant taxpayer that needs to file information is the one that features first in the list below:
  • the relevant taxpayer that agreed the reportable arrangement with the intermediary;
  • the relevant taxpayer that manages the implementation of the arrangement. 

However, a taxpayer shall be exempt from filing the information if such taxpayer can prove that the Reportable Information has already been filed by another taxpayer.

Absence of any further information, the same considerations as those detailed under point 1.3(a) above regarding multiple intermediaries in Luxembourg are applicable.

* Please note that for the purposes of this blog EU Member State includes the UK which has also taken final regulations for the implementation of DAC 6 into its legislation


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