On 21 March 2020, the Luxembourg Parliament approved draft law 7465 implementing the Council Directive (EU) 2018/822 (commonly known as DAC6) which introduces disclosure obligations for intermediaries and taxpayers of certain reportable cross-border arrangements. On 8 August 2019, the Luxembourg Government submitted the draft law to the parliament.

The provisions of the Law will apply to reportable cross-border arrangements concerning a Member State and either another Member State or a third country. Arrangements will be reportable if they contain at least one of the five hallmarks listed in the appendix attached to the law. These hallmarks describe characteristics or features of arrangements that may display an indication of a potential risk of tax avoidance.

Some of the hallmarks only apply if the so-called ‘main benefit test (MBT)’ is satisfied, which is the case where one of the main advantages that a person may reasonably expect to derive from an arrangement is a tax advantage in the EU or in a third country. This only applies with respect to direct taxes.

The revised version of the draft law published on 14 February 2020 extended the professional privilege exemption. Previously Luxembourg intended to apply for the professional privilege exemption only to lawyers acting in their capacity as lawyers. The exemption extended to chartered accountants and auditors. Moreover, an intermediary provides a service that involves a reportable arrangement and is covered by professional secrecy will require notifying other intermediaries of their reporting obligations or in the absence of any other intermediary the taxpayer itself.

Moreover, Luxembourg introduced a penalty of up to EUR 250,000 for failures to report, failures to report in accordance with the statutory deadlines, cases of incomplete reporting or inexact reporting.

The law will be effective from 1 July 2020, but will also cover measures that started being implemented after 24 June 2018.