On 16 May 2023, the Luxembourg Parliament (Chambre des Députés) adopted a law (the “DAC 7 Law”) implementing Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (“DAC 7”), effective as of 1 June 2023 (save for the joint audit procedure that applies as from 1 June 2024).
The DAC 7 Law introduces new rules on mandatory automatic exchange of information reported by digital platform operators. To that effect digital platform operators are under the obligation to (i) register with the Direct Tax Administration (Administration des contributions directes) (the “DTA”) and (ii) notify the DTA of any changes as from the initial registration. The DAC 7 Law sets out the due diligence procedures that platform operators are required to comply with to identify sellers using the digital platform and to declare any income received by these sellers.
Furthermore, the DAC 7 Law introduces (i) automatic and mandatory exchange of information on persons resident in other Member States with respect to their ownership of real estate assets (for taxable periods starting from 1 January 2025) and (ii) a framework for conducting joint audits with other EU Member States.
Finally, the DAC 7 Law amends the CRS (common reporting standard) regulation by introducing the obligation for reporting financial institutions to notify each individual holder that their personal information will be shared and, allow them to access their data and exercise their data protection rights prior to any transmission of information to the DTA.
When it comes to digital platform operators, the following elements are to be noted:
Relevant entities
The DAC 7 Law applies to digital platform operators, defined as entities having a contractual relationship with sellers and making all or part of a platform available to them.
The activities falling within the scope of the DAC 7 Law encompass the rental of immovable property, the personal services, the sale of goods and the rental of any mode of transport, carried out through platforms.
A platform, within the meaning of the DAC 7 Law, is any software, website or mobile application that is accessible to users and enables sellers to be connected to other users in order to carry out, directly or indirectly, a relevant activity intended for these other users.
The obligation to register with the DTA extends not only to reporting digital platform operators but also to non-reporting digital platform operators meaning platform operators demonstrating in advance and on an annual basis that according to its overall business model the platform has no reporting sellers.
The DAC 7 Law defines a reporting digital platform operator as any platform operator that is resident in Luxembourg for tax purposes or, in the absence of tax residence in the EU, (i) has been incorporated in accordance with the laws of Luxembourg, (ii) has its place of management in Luxembourg or (iii) has a permanent establishment in Luxembourg.
Any non-EU digital platform operator not having a link with Luxembourg or another EU Member State but facilitating the carrying out of a relevant activity by reporting sellers or a relevant activity consisting of the rental of real estate located in a Member State might also be concerned.
Obligation to register with the DTA
Digital platform operators must register with the DTA unless they are registered with and report to another Member State (assuming the conditions are met).
Digital platform operators must, in principle, register before 31 December 2023, or no later than the date on which the activities start if after the 31 December 2023. They shall also notify the DTA of any information changes within one month.
Reporting obligation
In order to comply with their reporting obligations, digital platform operators must provide certain information about themselves as well as about the reporting sellers (in particular information collected as part of the due diligence procedures) and the real estate in the case of rentals. Information must be provided no later than 31 January of the year following the calendar year in which the seller is identified as a reporting seller. For example, the first declaration concerns information relating to the year 2023 and must be filed with the DTA before 31 January 2024.
Obligation to comply with due diligence procedures
Digital platform operators must comply with due diligence procedures, in particular by determining sellers qualifying as excluded sellers, collecting and verifying information on sellers and determining the Member State(s) of residence of sellers.
The completion of the due diligence procedures is due by 31 December of the reportable period (i.e. by 31 December 2023 for the first time).
Penalties
Digital platform operators failing to (i) register or notify their choice within the legal deadline, (ii) inform the DTA of any changes within the legal deadline, (iii) declare the information relating to the declaration period within the legal deadline or providing incomplete or incorrect information may suffer a fixed fine of EUR 5,000.
It may also be subject to a penalty of up to EUR 250,000 if, upon an audit, the DTA discovers that the digital platform operator has not complied with its obligations in terms of performing due diligence procedures and fulfilling its reporting obligations.
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