Automatic exchange of information
Tax transparency and exchange of information have been extensively discussed at both European Union (“EU”) and international level in the past twelve months. An impressive number of initiatives have been taken in this domain, and it must be noted that some of them are just overlapping each other.
One of the milestones in this movement for more transparency was the adoption of the directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation (“EUACD”).
The EUACD is, in practice, divided into two parts.
On 29 March 2013, the law transposing the first part of the EUACD in Luxembourg was adopted by the Parliament with retroactive effect on 1 January 2013 (the “Law of March 2013”). It clarified the procedures applicable to exchange of information upon request within the EU, and introduces a mandatory procedure of spontaneous exchange of information in some specific cases.
The bill of law (n°6632) was originally submitted to the Parliament by the former Government in October 2013 and has been re-submitted by the new Government on 17 December. It aims at amending the Law of March 2013 via the transposition of the second part of the EUACD in Luxembourg tax law and the introduction of the automatic exchange of information on certain income streams (the “Bill of Law”).
What is not covered by the Bill of Law?
Before entering into the details of what the Bill of Law foresees, it is important to understand what is not covered.
First, the Bill of Law is not related to the announcement made by the former Prime Minister on 10 April 2013. During his speech on the state of the nation M. Juncker announced that Luxembourg has unilaterally decided to apply the automatic exchange of information on interest payments on debt claims made by Luxembourg financial operators to individuals resident in another EU Member State, with effect from 1 January 2015. Doing so, Luxembourg would put an end to the transitory period started in 2005 and would abolish the current option for the 35% withholding tax. This announcement (not yet included in an existing bill of law as of today) only concerns interest payments in the context of the taxation of savings and is governed by a specific legal framework, i.e. the EU Savings Directive and the law of 21 June 2005.
Secondly, the Bill of Law only aims at transposing the current version of the EUACD as adopted in 2011. As a result, the Bill of Law does not take into consideration the project launched by the EU Commission on 12 June 2013 to extend the scope of the EUACD to additional items of income (e.g. dividend and capital gains) in the sense of what has been called the “EU FATCA”.
What does the Bill of Law says?
With the submission of the Bill of Law to the Parliament more than one year before the deadline set by the EUACD, Luxembourg is in advance in the transposition process. This demonstrates the country's determination and efforts for increasing transparency.
According to the EUACD, mandatory automatic exchange shall apply to information regarding taxable periods as from 1 January 2014 that is available concerning residents in another Member State, and on following specific categories of income and capital: (a) income from employment, (b) director’s fees, (c) life insurance products, (d) pensions and (e) ownership of and income from immovable property.
In practice, the first automatic exchange of information based on the EUACD should therefore take place in 2015 with respect to information concerning 2014.
The condition of “availability” of the information covered by the automatic exchange of information in the context of the current version of the EUACD is also important to note.
Out of the five items of income mentioned in the EUACD, the Bill of Law identified income from employment, director’s fees and pensions as those for which the information is already available to the Luxembourg tax authorities and that will therefore be concerned by the automatic exchange of information in due time. In this regard, the Bill of Law merely confirms what was previously announced by the Luxembourg Authorities.
What are the next steps?
As the Bill of Law aims at transposing into domestic law a European directive, its adoption by the new Parliament is not doubtful. The question that remains is clearly “when” the Bill of Law will be adopted. Furthermore, the text of the EUACD is very clear and leaves no room for interpretation. Hence, the recent elections are not expected to have a major impact on the voting of the Bill of Law. It could possibly occur before year-end.
As suggested by the evocation of the other initiatives and projects currently discussed (in particular) at the European level, the adoption of the automatic exchange of information on income from employment, director’s fees, and pensions is clearly not the end of the process, even if it represents an important step towards more transparency. In the near future, automatic exchange of information will more and more be the norm for a broad range of items of income, at least within the EU and as far as individuals are concerned.
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