On November 25, 2014 the Luxembourg Parliament approved a law amending the procedure with respect to exchange of information on request (the “Law”), a subject which up until now was foreseen i.a. by the Law of March 31, 2010 (the “2010 Law”).
The Law gives a new direction to Luxembourg’s exchange of information practice (“EoI”) by substantially amending the procedure that has to be followed by the Luxembourg tax authorities (“LTA”) upon the reception of a request (“Request”) from foreign tax authorities (“FTA”) and the guarantees which are granted to the relevant taxpayers and / or holders of information (“HoI”) following reception of a notice for the disclosing of such information (“Notice”).
Legal basis for the request of information
If under the 2010 Law only EoI under Double Taxation Treaties was foreseen (though several different laws would apply the same procedure by referring to the 2010 Law) the Law now sets out an EoI procedure which is indistinctly applicable to EoI to be procured under:
Double Taxation Treaties;
Tax Information Exchange Agreements;
Council Directive 2010/24/EU of March 16, 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures;
Council Directive 2011/16/EU of February 15, 2010 on administrative cooperation in the field of taxation, or the,
OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Verification of the formal validity of the request
Following the reception of a Request, the LTA is now to verify only the formal ‒ and no longer the material ‒ validity of the Request.
Formal validity will be complied with provided that the Request contains the following elements:
the Request’s legal basis;
the competent authority issuing the Request, and
any other elements deemed necessary as per the relevant tax treaties and laws.
Where the Request is not formally valid as one of the abovementioned elements is missing the LTA should refer to the relevant FTA for the missing information in order to reply to the Request.
Information of any nature may be requested by the FTA to the LTA and by the latter to HoI, as follows.
Where the LTA do not hold the relevant information they shall request it to the relevant HoI through a Notice. The latter must answer, in a precise manner, to all questions asked and provide all the information and documents requested by the competent tax authority in their entirety and without alteration, e.g. even if it simultaneously concerns or is with respect to a third party; the practical consequence possibly being that a HoI may come to also release the names of joint account holders and financial / bank statements would not only show relevant transactions but all of the transactions foreseen therein.
Failure to disclose or imperfect disclosing of the requested information may lead to a tax penalty of up to EUR 250.000.
Further, in line with prior case law, the Law allows for the requested information to relate to years preceding the entry into force of the relevant agreements / laws allowing for the EoI, to the extent that the FTA shows that such information is foreseeably relevant to determine the taxable income of a year upon when such agreements / laws are already in force.
Refraining from informing the relevant taxpayer
If the FTA requires the LTA for the relevant taxpayer not to be informed, the LTA should demand the HoI (including its managers and employees) not to reveal the Request’s existence and/or contents to the relevant taxpayer or any other third party.
Failure to comply with such duty may lead to a tax penalty of up to EUR 250.000.
No appeal from the Notice
No appeal possibility is foreseen following the reception of a Notice (neither by the taxpayer nor by the HoI). This is probably the Law’s most relevant amendment as in the past relevant parties were given the possibility of filing an appeal to the extent they wished to challenge the Notice’s validity (and indirectly of the Request).
Appeal from tax penalty application decisions
Similarly to what was set forth under the 2010 Law, to the extent that a HoI is fined for either having refused to disclose / imperfectly disclosed the requested information or for having disrespected the LTA demand not to disclose the Notice existence / contents to the relevant taxpayer, an appeal may be filed with the Tribunal Administratif within 30 days, seeking annulment or reduction of the tax penalty. The decision on this appeal can, in turn, also be the object of an appeal before the Court Administrative within 15 days.
The Request is not to be disclosed in any case.
Entry into force
The Law has entered into force on December, 1st 2014. Notwithstanding the aforementioned, the 2010 Law provisions are applicable to any EoI procedure still ongoing upon such date.
The charts below summarize the EoI procedure under both the 2010 Law and the Law:
EoI procedure under 2010 Law:
Please click on the image to enlarge.
Current EoI procedure:
Please click on the image to enlarge.
For further information please click here to read our publication of October 2014 on Luxembourg’s exchange of information under double tax treaties.