Extension and reinforcement of the tax offences

Tax misconducts will, under certain conditions, not only be punishable by administrative penalties but also be considered a criminal offence and subject to criminal sanctions. To fight efficiently tax fraud, harmful and unethical tax behaviours, enhance solidarity between taxpayers as well as fair competition, as from 1 January 2017, three categories of tax misconducts will be applicable for direct and indirect taxes, being (i) the simple tax fraud, (ii) the aggravated tax fraud, and (iii) the tax swindling.

The simple tax fraud is not a criminal offence and hence is only punishable by administrative penalties by the competent tax authorities.

The newly introduced aggravated tax fraud is a criminal offence due to the gravity of the tax misconduct. The gravity is assessed according to the amount of the tax evaded (or unduly reimbursed). Such amount is assessed either by exceeding a given threshold or exceeding a certain percentage of the annual tax due (or unduly reimbursed). Indeed, an aggravated tax fraud will be considered as being made if either the amount of the tax evaded (or unduly reimbursed) exceeds EUR 200.000, or if the tax evaded (or unduly reimbursed) (i) exceeds 25% of the annual tax due (or unduly reimbursed) and (ii) is equal or exceeds EUR 10,000. Such tax fraud will be punishable by imprisonment from one month to three years and a penalty going from EUR 25,000 to an amount equal to six times the amount of the tax evaded (or unduly reimbursed).

Tax swindling is considered as including an additional layer of gravity due to the fact that the misconduct results from fraudulent acts with the clear intention to mislead the tax authorities as regards the real tax situation. A misconduct involving a significant amount of taxes evaded (or unduly reimbursed) is punishable by imprisonment from one month to five years and a penalty going from EUR 25,000 to an amount equal to ten times the amount of the tax evaded (or unduly reimbursed). As for indirect taxes, individuals having committed such an offence can in addition be excluded from all or part of the rights enumerated under article 11 of the Criminal Code for five to ten years.

Higher tax penalty amounts

In addition to the extension and reinforcement of the tax offences, the existing tax penalties, applicable to taxpayers in relation to their direct and indirect tax obligations, will be increased as of 1 January 2017 as follows:

  • The penalties applicable for non-filing, incompleteness or inaccuracies in the direct tax returns will be increased to a maximum of 25%, but no less than 5%, of the taxes evaded (or unduly reimbursed), to further encourage taxpayers (individuals and corporations) to comply with their filing obligations.
  • A recurring fine (astreinte) pronounced for non-compliance with the demands of the direct tax authorities will be increased up to a maximum of EUR 25,000 (previously, approx. EUR 1,240). A three month period between recurring fines has to be respected.
  • The tax fines applicable for the breach of the VAT compliance obligations and VAT payments will amount to between EUR 250 and EUR 10,000 (previously EUR 50 to EUR 5,000) per infraction.
  • The tax fines for certain infringements to the VAT reporting obligations will be increased to a maximum amount of EUR 25,000 (previously EUR 50 to EUR 1,000) per day.
  • A ad valorem penalty of 10% to 50% (instead of up to 10%) of the VAT amount evaded (or unduly reimbursed) will apply in case of breach of some specific VAT provisions committed with the aim to evade, or get undue reimbursement of the VAT. Contrary to the previous version of the ad valorem penalty provision, the new text on one hand limits the scope of the penalty to only specific breaches but on the other hand and does not require a fraudulent intention for the penalty to apply anymore.

Information on bearer shares

To be in line with current applied standards as regards to the identification of holders of bearer shares and units, the Luxembourg direct tax administration (Administration des Contributions Directes - ACD) will have the right to ask companies concerned by the law of 28 July 2014 on mandatory deposit and immobilisation of bearer shares and units, any relevant information to ensure that these companies comply with their legal obligations resulting from the previous mentioned law.

Moreover, companies subject to subscription tax are required to inform until 30 June 2017 the Luxembourg indirect tax authorities (Administration de l'enregistrement et des domaines AED) that they have complied with the obligations set out by the above mentioned law.

Further, The ACD and AED will be entitled to exchange information on this matter with the Consignment office (Caisse de Consignation).

Introduction of a personal and joint VAT liability for certain directors/managers

Managing directors (administrateurs-délégués), managers (gérants) as well as any de jure or de facto manager (tout dirigeant de droit ou de fait) in charge of the daily management of a company will become responsible for the fulfilment of the VAT obligations of the company they manage. As a consequence, they will be personally and jointly liable for a negligent breach (inexécution fautive) of their obligations in the fulfilment of the company's VAT liabilities (e.g., late payment, filing of VAT returns, inaccuracies in the filed VAT returns, etc.).

As a consequence, the director of the Luxembourg indirect tax administration will be lawfully entitled, where applicable, to issue a guarantee call (appel en garantie) against these persons.

Whilst this new provision will certainly provide some discomfort, its scope have fortunately be reduced significantly from the original draft law further to the formal opposition of the Council of State. Indeed, whilst initially, all directors, managers, beneficiaries (ayant droit), receivers (curateurs), liquidators (liquidateurs) seemed to fall within the scope of this personal and jointly VAT liability, only managing directors, managers as well as any de jure or de facto daily manager are now covered. Even more important, it has been specified that a personal and joint VAT liability may only be applicable in case of a negligent breach of the obligations of these persons, compared to an initial proposition whereby such liability could have been triggered as soon as the company would not have fulfilled its VAT liabilities.

Considering the explanations of the Parliamentary commission during the preparatory work of the Tax Reform, only persons dealing with the daily management of a company should have a personal and jointly VAT liability in case of a negligent breach of their obligations. In this respect, the "daily management" is to be understood as "any action that requires to be performed each day in order to ensure the right functioning of the company's affairs". Therefore, only the person(s) that is/are in charge of the day-to-day management should directly be concerned by this new provision. It is thus regrettable in our view that the current French text of the Tax Reform seems unclear on this point. Indeed, whilst managing directors and de jure or de facto daily manager are per se persons that are responsible for the day-to-day management of a company, "managers", as referred to in the Tax Reform, do not seem to be limited to daily managers. As a result, there is uncertainty regarding the fate of those managers who are not dealing with the daily management of the company. This lack of precision is regrettable, especially in light of the recently amended Luxembourg companies law of 10 August 1915 allowing the appointment of a daily manager for Luxembourg private limited companies (sociétés à responsabilité limitée).

As regards the definition of negligent breach, clarifications can be found within the Luxembourg doctrine and administrative case law, which have rather largely developed this notion already existing in other legal areas.