LUXEMBOURG Law and Practice Contributed by: Michiel Boeren, Jeronimo Charvarria, Maxime Grosjean and Gauthier Mary, Tiberghien
5.5 Role of Tax Authorities and Enforcement Measures The Luxembourg tax authorities have extensive investigative powers, including conducting tax audits, accessing accounting and banking informa - tion, requesting third-party data, carrying out on-site inspections and, in some cases, making unannounced visits to businesses. The tax administration cannot autonomously conduct tax searches or raids (fiscal perquisitions); these become available only once a matter has been escalated to the criminal sphere, at which point the prosecutor and investigating judge may authorise searches, seizures and asset freezes. These tools are complemented by extended assess - ment periods, powerful civil enforcement and asset seizure powers that can be exercised without court authorisation, and criminal prosecution mechanisms in cases of tax fraud. The Luxembourg General Tax Law, and in particular the law that implements EU DAC6 in Luxembourg, establishes the main legal framework for penalties in the event of a failure to comply with cross-border transaction reporting obligations. Penalties of up to EUR250,000 may be imposed on intermediaries and taxpayers if they fail to report or notify other interme - diaries or relevant taxpayers (in the case of exempt intermediaries), if they report late, or if they provide incomplete or inaccurate information. This penal - ty may be applied to each reportable cross-border arrangement. The authority responsible for enforcement is the Administration des contributions directes . 6.2 Criminal Penalties 6. Penalties and Sanctions 6.1 Tax Penalties The criminal tax offences and penalties are as follows. • Aggravated tax fraud is punishable by imprison - ment ranging from one month to three years and a fine ranging from EUR25,000 to up to six times the amount of evaded taxes (or unduly obtained refund).
In addition to the GAAR, SAARs are relevant in a cross-border context – for example, controlled foreign company rules, interest limitation rules, anti-hybrid mismatch rules relating to certain income and with - holding tax, and transfer pricing rules based on the arm’s length principle. Another example is the princi - pal purpose test provisions under Luxembourg’s tax treaties. Luxembourg also combats tax evasion and aggres - sive avoidance by exchanging information with other jurisdictions. 5.3 Blacklists and Non-Cooperative Jurisdictions Luxembourg applies the EU list of non-cooperative jurisdictions for tax purposes. Interest and royalties due by Luxembourg taxpayers to related entities based in a jurisdiction included on this list are not tax-deductible unless the taxpayers can prove that there are valid economic reasons relat - ing to the transactions that originated such payments. In this context, the recipients of the payments must be corporate entities (a look-through approach applies in cases where the recipients are transparent for tax purposes from a Luxembourg perspective) and the beneficial owners. 5.4 Reporting Obligations and Disclosure Regimes To combat tax evasion, fraud and aggressive tax avoid - ance, Luxembourg has implemented an extensive set of reporting obligations. Key measures include: • DAC6 mandatory disclosure rules, which require intermediaries and taxpayers to report certain cross-border arrangements; • Country-by-Country Reporting and transfer pricing documentation for multinational groups; • Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) reporting for financial institutions regarding foreign account information, enabling the automatic exchange of data with other jurisdictions; and • suspicious transaction reporting obligations under AML legislation.
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