Luxembourg’s Mandatory Disclosure Regime (DAC6) - Are You Ready For Audit?

Under the mandatory disclosure regime (MDR) introduced in Luxembourg by the law of March 25, 2020 (the MDR Law), tax intermediaries such as tax advisers, accountants, and lawyers that design, promote or provide assistance in regard to certain cross-border arrangements have to report these to the tax authorities. Since the implementation of the MDR, the scrutiny of potential reporting obligations has become an integral part of every tax analysis. The proper management of potential reporting obligations under the MDR requires both tax intermediaries and taxpayers to adopt appropriate processes in order to ensure compliance and to mitigate the risk of penalties, which can amount to as much as 250,000 euros ($284,000). Article 16 of the MDR Law states that the Luxembourg direct tax authorities monitor compliance of intermediaries and relevant taxpayers with the reporting obligations under the MDR. The Luxembourg tax authorities further verify whether the intermediaries and relevant taxpayers attempt to adopt practices to circumvent the filing of information. More recently, the Luxembourg tax authorities began investigating the MDR readiness of, and processes implemented by, tax intermediaries. It can be expected that this will become a more common phenomenon and both tax intermediaries and taxpayers need to be prepared to evidence that they comply with the MDR