luLex: Tax information exchange “on request”

In our newsletters 2009/02, 2009/03 and 2010/02 we reported on the OECD standards (article 26 OECD model treaty) regarding information exchange on request in tax matters, implemented by Luxembourg through the conclusion of new tax treaties or amendments to existing treaties and through a new national procedure to be followed by the Luxembourg tax authorities when executing a request from a foreign tax authority (law dd. March 31st 2010, Memorial n°51 of April 6th 2010). Various Court decisions have been issued since, allowing to better understand the limits of such information exchange: – the law of March 31st 2010 is of “immediate effect” also to information requests which have been filed by the foreign authority prior to the entry into force of the law, provided a treaty containing an information exchange provision was in force at the time the request was filed and the requested information refers to a period covered by that treaty; – the request from the foreign tax authority is “confidential”, but it would be contrary to the principles of a fair trial not to grant the person opposing to an information exchange access to that that request; – a request is “foreseeably relevant” merely if all the conditions defined in the relevant treaty are met – this decision was subject to appeal, but the Administrative Court of Appeal did not specifically rule on this aspect: it indicated however that the Luxembourg tax authority (as well as the judge) has to check whether really all the conditions set by the applicable treaty are met; – the request must be “understandable”: was not considered “understandable” a request from the French tax authorities asking for information from a Luxembourg company in order to tax French residents, without being established that there was a link between those French taxpayers and the Luxembourg company – this was overruled by the Administrative Court of Appeal which considered that the fact that the French residents were also shareholders of a subsidiary of the Luxembourg company was a sufficient link; – the request must be “motivated”: the mere fact that the Head of Luxembourg tax authority considers that a request from a foreign authority is compliant with the relevant tax treaty is not an accurate motivation because it does not show the foreseeable relevance of the requested information (and might thus be a “fishing expedition”); – the “relevance” of the requested information has to be appreciated in view of the tax purpose the information is sought. So far, we have no knowledge of requests for information exchange involving information held by Luxembourg (life) insurance undertakings.”

Notre conseil

Every insurance undertaking or broker receiving a request for information about one of its clients should thus definitely check whether this request complies with the national and international regulations, and inform its client in order to allow the latter to file a recourse against the request.”