Foreseeable relevance
Pursuant to Article 5 of DAC, as transposed in Luxembourg law by the law of 29 March 2013, the requested authority is to communicate to the requesting authority any information it has in its possession, or that it obtains as a result of administrative inquiries, which is foreseeably relevant to the administration and enforcement of the domestic laws of the requesting Member State concerning the taxes falling within the scope of that Directive (i.e., all taxes of any kind levied by or on behalf of an EU Member State, excluding VAT, customs duties, excise duties covered by other EU legislation on administrative cooperation between Member States and compulsory social security contributions payable to the State of Luxembourg or to another Member State or a subdivision of the Member State or to social security institutions established under public law).
To ensure the effectiveness of exchange of information and to prevent unjustified refusals of requests, as well as to provide legal certainty for both tax administrations and taxpayers, DAC7 delineates and codifies the internationally agreed standard of foreseeable relevance.
Accordingly, the Draft Law proposes to complete the law of 29 March 2013 by a new article according to which the 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 new provision also indicates the minimum information that must be provided by the requesting authority, including in presence of requests for exchange of information that relate to a group of taxpayers that cannot be individually identified.
The Draft Law also adapts the deadlines by which the requested Luxembourg authority must respond to a request for exchange of information. The maximum response time remains two months as from the receipt of the request if the requested Luxembourg authority is already in possession of the information, but it is shortened from currently six months to three months in all other cases. The deadline may be extended to six months if the requested Luxembourg authority is unable to respond to the request by the relevant time limit.
Automatic exchange of information on the ownership of real estate
DAC7 requires EU Member States to automatically exchange information on at least four categories of income and capital for taxable periods beginning on or after 1 January 2025. For the time being, Luxembourg exchanges information on income from employment, directors' fees and pensions. As from taxable periods beginning on 1 January 2025, the Draft Law provides for the extension of the automatic and mandatory exchange of information to the ownership of real estate.
Other forms of administrative cooperation
Among other things, the Draft Law amends the provisions of the law of 29 March 2013 with respect to requests for the presence of officials of another EU Member State in the administrative offices and their participation in administrative enquiries.
Officials authorized by the requesting authority may, upon request, participate in administrative enquiries carried out by the requested Luxembourg authority through the use of electronic means of communication, where appropriate.
The deadline for the requested Luxembourg authority to respond (acceptance or motivated refusal) is set at 60 days as from the receipt of the request.
Where the requested information is contained in documentation to which the officials of the requested Luxembourg authority have access in the framework of the administrative enquiry, the officials of the requesting authority shall be given copies thereof. Under certain conditions, officials of the requesting authority who assist or participate in administrative enquiries, may also interview individuals and examine documents.
The Draft Law also introduces a new form of administrative cooperation, being the joint audit. The joint audit is defined as an administrative inquiry jointly conducted by the competent authorities of Luxembourg and of one or more other EU Member States and linked to one or more persons of common or complementary interest to those competent authorities. It will be conducted in a pre-agreed and coordinated manner, and, if carried out in Luxembourg, according to the procedural modalities as defined by the Luxembourg tax laws.
Entry into force
The provisions of the Draft Law will enter into force on 1 January 2023, except as regards the provisions on joint audits that will enter into force on 1 January 2024.
Reporting Platform Operators will thus have to register with the Luxembourg Tax Authority by 31 December 2023 at the latest. A Reporting Platform Operator starting its activity after 31 December 2023 must register at the latest at the date it starts its activity.
The first reports will have to be filed with the Luxembourg Tax Authority at the latest on 31 January 2024. Before the reporting, Reporting Platform Operators will have to provide the required information to the Sellers.
A Reporting Platform Operator shall complete the due diligence procedures as foreseen by the Draft Law by 31 December of the Reportable Period, thus for the first time by 31 December 2023. However, with respect to Sellers already registered on the Platform as of 1 January 2023, the deadline is extended to 31 December 2024.
Implications
Digital platforms need to identify the business units that will have reporting obligations under DAC7 and the Draft Law and develop a plan for the overall adoption through to the first reporting in Luxembourg in 2024. The requirements will need to be appropriately delineated and delegated such that actions, owners, responsibilities and timelines within the business align.
It is likely that changes will be needed during seller onboarding and payments processing, monitoring and reporting systems, along with changes to terms and conditions, and data protection standards, which will require co-ordination between the business units, tax departments, legal departments, IT departments and external vendors.
Acting now allows businesses to be ready and compliant when the new rules enter into force.