February 25, 2021
Luxembourg Tax Authorities update MDR guidance
The Luxembourg Tax Authorities, on 13 May 2020, issued guidance (the Guidance) addressing the European Union (EU) Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as DAC6 or the Directive). Under DAC6, taxpayers and intermediaries are required to report cross-border reportable arrangements from 1 July 2020. However, reports will retrospectively cover arrangements where the first step is implemented between 25 June 2018 and 1 July 2020.
On 17 February 2021, the Guidance was updated to address the impact of Brexit on the obligations under the Luxembourg implementation of DAC6 and to provide some guidance on the concept of a participant in an arrangement. In addition, the Guidance provides for further clarification with respect to marketable arrangements and to certain items related to the reporting process.
This Alert only highlights the modifications and clarifications provided by the updated version of the Guidance. The elements that are not discussed in this Alert have not been modified in the Guidance. For additional details on Luxembourg’s MDR Guidance, see EY Global Tax Alert, Luxembourg Tax Authorities issue MDR Guidance dated 2 June 2020.
Impact of Brexit on the reporting and notification of intermediaries and taxpayers concerned
The change in scope of the United Kingdom (UK) mandatory disclosure rules1 have raised many questions, some of which are addressed by the updated Guidance.
For the purposes of determining whether an arrangement where the first step was implemented between 25 June 2018 and 31 December 2020 qualifies as a reportable cross-border arrangement under the Directive, the Guidance clarifies that intermediaries and relevant taxpayers can rely on the analysis carried out on the premise that the UK was an EU Member State during the period in question. In other words, there is no requirement for intermediaries and relevant taxpayers to redo an analysis previously carried out considering the UK this time as a third state for arrangements where the first step was implemented during the aforementioned period. For completeness, our understanding is that the same applies to the other triggering events for the deferral period.
When determining whether an arrangement triggers a reporting or notification obligation in Luxembourg as of 1 January 2021, the UK is to be considered as a third State. This holds true also for cross-border arrangements where the first step was implemented between 25 June 2018 and 31 December 2020, or for arrangements that would be reported in the UK pursuant to a legal basis other than the Directive.
From a technical point of view, when declaring a cross-border arrangement, the UK should not be indicated as a concerned Member State.
Concept of participant in an arrangement
According to the Guidance, the concept of participant in an arrangement does not only cover relevant taxpayers, but also their business or contractual partners with respect to the arrangement in question. For example, the buyer or seller of a property, the tenant or owner of an economic property, lessors or lessees, as well as lenders or borrowers would be participants in an arrangement.
The Guidance specifies that an arrangement is reportable as a marketable arrangement when regular updates, particularly the addition of relevant taxpayers, are contemplated. The Guidance further clarifies that an arrangement that contains hallmark A.3., i.e., an arrangement that has substantially standardized documentation and/or structure and is available to more than one relevant taxpayer without the need to be substantially customized for implementation, does not automatically constitute a marketable arrangement.
Items related to the reporting process
When the reporting person is not aware of an item of information that is not mandatory for the report, the Guidance recommends that the respective field not be filled in.
With respect to the details to be provided of the national provisions that form the basis of the reportable cross-border arrangement, while it is not necessary to reproduce the legal provisions, the Guidance specifies that the reporting person must indicate the relevant domestic legislation of all the countries concerned on which the arrangement is based and of which he/she is aware.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Advisory Services Sàrl, Luxembourg City
Ernst & Young LLP, Luxembourg Tax Desk, New York
Ernst & Young LLP, Luxembourg Tax Desk, Chicago