Luxembourg enacts tax transparency rules for digital platforms, makes other changes regarding administrative cooperation in tax matters

• On 1 June 2023 a Luxembourg law requiring the automatic and mandatory exchange of information reported by Platform Operators comes into force, with the first reports to be filed with the Luxembourg Tax Authority no later than 31 January 2024.

• The law also introduces some generic changes to the existing legislation on administrative cooperation in tax matters and amends the CRS and MDR laws to comply with data protection requirements.

Executive summary

On 19 May 2023 the "Law on the automatic and mandatory exchange of information reported by Platform Operators"1 (Law) was published in the 'Official Journal of the Grand Duchy of Luxembourg'.

The Law implements Council Directive (EU) 2021/514 of 22 March 2021 (DAC 7), amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC), and introduces new obligations for Platform Operators.

In addition to the new rules, the Law amends a number of other laws on exchange of information, including the "Law on Common Reporting Standards" (CRS Law)2 and the "Law on the mandatory disclosure and exchange of information on cross-border tax arrangements" (MDR Law).3

Detailed discussion

Obligations for Platform Operators

Platform Operators, as defined in the Law, must:

·   Register with the Luxembourg Tax Authorities (LTA) or notify the LTA if they are already registered in another EU Member State

·   Carry out specific due diligence procedures and report to the LTA certain determined information on the sellers as foreseen in the Law

For more details on the new rules, please refer to our previous tax alert on the topic "Luxembourg publishes draft tax transparency rules for digital platforms."

Data protection — Changes to CRS and MDR Laws

In addition to introducing new rules, the Law makes changes to existing laws.

Amendments made in the CRS Law help ensure that personal data is protected as per Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 (on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and repealing Directive 95/46/EC (General Data Protection Regulation, GDPR)). Specifically, the CRS Law 4 clarifies that a Luxembourg reporting financial institution must (i) inform each individual concerned that information relating to that individual will be collected and transferred in accordance with the CRS Law and (ii) transmit to each individual concerned all the information that the individual is entitled to receive from the data controller, providing sufficient time for the individual to exercise his/her data protection rights and, in any event, transmitting the information before it is communicated to the Direct Tax Administration.

A similar obligation for the reporting intermediary is now also established in the MDR Law.

Administrative cooperation in the field of taxation

                Exchange of information upon request

To ensure that information is effectively exchanged upon request and to prevent unjustified refusals of requests, the Law furthermore delineates and codifies the internationally agreed standard of "foreseeable relevance" as foreseen by DAC7 into Luxembourg's 29 March 2013 law transposing DAC. The Law also clarifies the legal framework of requests for information concerning groups of taxpayers that cannot be identified individually. In such cases, the foreseeable relevance of the requested information must be described on the basis of a common set of characteristics.

                Automatic exchange of information on the ownership of real estate

Furthermore, for taxable periods starting on or after 1 January 2025, the Law extends the mandatory automatic exchange of information to information on Luxembourg real estate owned by individuals and entities that are resident in another EU Member State.

                Joint audits

The Law also introduces joint audits as a new tool for administrative cooperation and clarifies the framework and principles that apply to a joint audit. A joint audit is an administrative inquiry conducted jointly by the competent authorities of Luxembourg and one or more other European Union (EU) Member States and relating to one or more persons of common or complementary interest to these competent authorities.

What is coming next?

·   Except for certain rules relating to joint audits, the Law takes effect from 1 June 2023.

·   The form and operating details of the registration and DAC7 report are determined by the Grand-ducal Regulation.

·   Reporting Platform Operators will have to register with the Luxembourg Tax Authority by 31 December 2023, at the latest. A Reporting Platform Operator commencing its activity after 31 December 2023 must register no later than the date it starts its activity.

·   The first DAC 7 reporting deadline is 31 January 2024.
 

Endnotes

1 Loi du 16 mai 2023 relative à l'échange automatique et obligatoire des informations déclarées par les Opérateurs de Plateforme.

2 Loi du 18 décembre 2015 modifiée relative à la Norme commune de déclaration (NCD).

3 Loi du 25 mars 2020 relative aux dispositifs transfrontières devant faire l'objet d'une déclaration.

4 New Art. 5(4) of the CRS Law.