On 8 August 2019, a draft law implementing the Council Directive (EU) 2018/822 of 25 May 2018 as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements ("DAC 6") was submitted by the government to the Luxembourg parliament.
As expected, the wording of draft law largely resembles the wording of the DAC 6 and the commentaries to the draft law provide only few explanations on how it will be interpreted and applied in practice. In this newsletter, we outline the content of the draft law and the related commentaries.
What type of arrangement will need to be reported?
Under the draft law, EU tax intermediaries such as tax advisers, accountants and lawyers that design and/or promote tax planning schemes, will have to report potentially aggressive tax planning cross-border arrangements to the tax authorities.
The term arrangement may also include a series of arrangements and an arrangement may comprise more than one step. Hence, the understanding of the term "arrangement" within the meaning of the draft law is very broad. An arrangement is considered as cross-border if it concerns either (i) more than one EU Member State or (ii) an EU Member State and a third country.
Cross-border arrangements may be reportable if they contain at least one of the hallmarks listed in an annex to the draft law. These hallmarks describe characteristics or features of cross-border arrangements that might present an indication of a potential risk of tax avoidance.
In order to be taken into account, certain Hallmarks must fulfil a main benefit test ("MBT"). The draft law provides that this test will be satisfied if "it can be established that the main benefit or one of the main benefits which a person may reasonably expect to derive from an arrangement, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage".
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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.