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Implementing DAC 7 In Luxembourg: Bill Laid Before Parliament – Tax Authorities


The bill contains several sections that complement and
extend the existing domestic rules on tax transparency and exchange
of information.

On 13 June 2022, the Luxembourg government laid bill no. 8029
(the “Bill“) before Parliament. It would
implement into domestic law Council Directive (EU) 2021/514 of 22
March 2021 amending Directive 2011/16/EU on administrative
cooperation in the field of taxation (“DAC
7
“).

The Bill contains several sections that complement and extend
the existing domestic rules on tax transparency and exchange of
information.

The Bill includes provisions of DAC 7 that expand and help
harmonise the exchange of information between the tax authorities
of different Member States. Notably, a definition has been
established for the term “foreseeable relevance”
(pertinence vraisemblable): requested information is
foreseeably relevant where, “at the time the request is made,
the requesting authority considers that, in accordance with its
national law, there is a reasonable possibility that the requested
information will be relevant to the tax affairs of one or several
taxpayers, whether identified by name or otherwise, and be
justified for the purposes of the investigation.”

The Bill also clarifies the exchange of information mechanism
for requests on a group of taxpayers that cannot be identified
individually. In this case, the foreseeable relevance of the
requested information must instead be described on the basis of a
common set of characteristics.

The Bill introduces automatic and mandatory exchange of
information on persons resident in other Member States with respect
to their ownership of real estate assets. Such exchange will cover
information on taxable periods from 1 January 2025. The Bill also
enhances the rules for performing simultaneous controls and
provides a framework for conducting joint audits with other EU
Member States.

Finally, it introduces new rules on the mandatory automatic
exchange of information reported by digital platform
operators.

Mandatory automatic exchange of information reported by digital
platform operators

The main proposed provisions introduce obligations for digital
platform operators to register in Luxembourg, to collect
information on income earned by sellers on their platforms and to
report that information to the Luxembourg tax authorities. The
Luxembourg tax authorities are obliged to automatically exchange
this information with the tax authorities of the relevant EU Member
States. The following paragraphs give a basic outline of the
proposed measures.

Registration


Reporting platform operators must register with the Luxembourg tax
authorities by 31 December 2023 or, after that date, at the time
they start their activity.

The category of “reporting platform operator” includes
any platform operator located in Luxembourg (e.g., tax resident or
with a permanent establishment in Luxembourg). It also includes
platform operators with no such link to Luxembourg or another
Member State, located in jurisdictions that do not automatically
exchange information with EU Member States, but that facilitate (i)
the exercise of a relevant activity (i.e. the rental of immovable
property located in the EU, personal services, the sale of goods or
the rental of any mode of transport) by reportable sellers, or (ii)
the rental of real estate located in a Member State.

“Excluded platform operators” must also register with
the Luxembourg tax authorities. This category includes platform
operators that demonstrate that they have no reportable sellers.
Reportable sellers are active sellers that are resident in a Member
State, or that have rented out immovable property located in a
Member State. A list of excluded seller types can be found in the
Bill (for example, listed entities).

Reporting and exchange of information


Reporting platform operators must carry out due diligence
procedures and meet reporting obligations. By 31 December of the
reporting period, they must collect certain information from
reportable sellers, verify its reliability and then determine, on
the basis of this information, the sellers’ Member States of
residence.

By 31 January of the year following the calendar year in which a
reporting platform operator identifies a seller as reportable, the
platform operator must report the information collected on that
seller to the Luxembourg tax authorities. However, the platform
operator is exempt from reporting this information if it has
evidence that the same information has already been provided by
another platform operator to the Luxembourg tax authorities, or to
the competent authority of another Member State.

Reportable information includes inter alia details on
reportable sellers, income earned from reportable activities, fees
and commissions incurred, as well as specific information with
respect to immovable property rental services. Platform operators
must keep a record of the information collected for ten years
following the reporting period, and must have the necessary
procedures, controls, policies and IT systems in place for this
purpose.

The Luxembourg tax authorities will automatically exchange the
information on a reportable seller within two months following the
end of the reporting period, in a standard computerised format,
with the competent tax authority of the Member State in which the
reportable seller is resident or in which the relevant immovable
property is located, as the case may be.

Platform operators that inter alia fail to comply with
their registration, notification or reporting obligations within
the legal deadlines may incur a fixed penalty of 5,000 euros. They
may incur a penalty of up to 250,000 euros if, following an
inspection, they fail to comply with obligations under the Bill
other than those listed above. The Luxembourg tax authorities may
revoke the registration of a non-EU platform operator that does not
comply with its reporting obligation and may request that it be
prevented from operating in Luxembourg.

Conclusion

The Bill is largely in line with DAC 7: it is intended to
strengthen administrative cooperation with other EU Member States
and sets out new provisions that target the challenges posed by the
digital platform economy, in which income earned through digital
platforms often goes unreported, and the tax due on it unpaid.

The extended definition of “foreseeable relevance” is
expected not to result in any substantial change to how the related
rules are applied in Luxembourg. However, one could expect tax
administrations to further develop the use of group requests for
information under the new legal framework. This should be closely
monitored by actors in the market.

The Bill will now follow the normal legislative process. The new
rules will apply from 1 January 2023 onwards, save for the new
framework on joint audits, which will apply from 1 January
2024.

This short timeline leaves players active in the digital
platform economy an opportunity to assess the impact of the changes
on their operations and internal processes.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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