On 28 July 2021, the Luxembourg Tax Authorities has issued Circular No. 67 to set administrative fines and penalties in cases of tax fraud, criminal fraud, and the cooperation between the tax administration and the judicial authorities.

The purpose of this circular is to lay down general guidelines to be observed during the setting of administrative fines under subsections 166 (3), 396 (1), and 402 (1) AO and when applying paragraphs 396 (5) and 396 (6) AO in matters of tax evasion aggravated and tax fraud.

Fines in case of incomplete or inaccurate tax returns

The incomplete or inaccurate declaration is punished with a fine of 5% to 25% of evaded taxes. The law specifies that the intention of the taxpayer is required. It should be noted that the sanction provided for in subsection 166 (3) AO requires that the imposition be established.

Fines in case of simple tax fraud

Simple tax evasion carries a fine of 10% to 50% of the taxes evaded. The undue advantage can consist of either an evaded tax amount or undue reimbursements. The sanction imposed on the basis of subsection 396 (1) AO requires that it be established that an unjustified tax advantage has been granted or that a tax debt lower than the amount which should have been retained if the actual situation had been established.

Fines in case of involuntary tax fraud

In case of not intentional but due to the taxpayer’s negligence of tax evasion, the fine ranges from 5% to 25% of the evaded taxes. The sanction can concern the taxpayer itself but also its representative or another person, which acts as an intermediary in the relationship with the tax authorities. These fines are based on subsection 396 (1) AO.

Criminal offenses and cooperation with judicial authorities

• Aggravated tax fraud and tax evasion:  Subsection 396 (5) AO provides that if the fraud relates to an amount of tax greater than a quarter of the annual tax actually due without being less than EUR 10,000 or on an undue reimbursement greater than a quarter of the reimbursement annual actually due without being less than EUR 10,000 or if the amount of annual tax evaded or the annual reimbursement to be operated is greater than the sum of EUR 200,000, it will be punished as tax evasion aggravated by imprisonment from 1 month to 3 years and a fine of EUR 25,000 to an amount representing 6 times the tax evaded or the reimbursement improperly obtained.
• Intentional tax fraud and tax evasion: Subsection 396 (6) AO provides fines of imprisonment between 1 month to 5 years and a monetary fine between EUR 25,000 and an amount representing 10 times the amount of avoided.

Cooperation between direct tax authorities and judicial authorities

The Circular also includes guidance on the cooperation between the tax authorities and judicial authorities.