Thursday, 14 April 2016

Luxembourg: Two-year tax amnesty in effect

Luxembourg introduced its first-ever tax amnesty on 1 January 2016, providing taxpayers a two-year opportunity to declare certain previously undeclared income.

The tax amnesty is available to both corporate and individual taxpayers that have held undeclared assets and/or received undeclared income in Luxembourg and that wish to “regularize” their tax situations. Such taxpayers may file a “corrective tax return” and pay the tax due on the income; the tax due will be increased by 10% for corrective returns filed in 2016 and by 20% for returns filed in 2017. By filing a corrective return and paying the tax, a taxpayer can avoid prosecution for tax fraud, which entails a possible jail sentence of up to five years, as well as the imposition of monetary penalties of up to 10 times the amount of unpaid taxes.

It should be noted that the amnesty applies where a taxpayer intentionally or unintentionally failed to disclose assets or income, but not to nondisclosures due to activities such as money laundering, terrorism, etc. Taxpayers suspected of engaging in the latter types of activities will be reported to the Public Prosecutor’s Department for prosecution.

The Luxembourg tax administration has not issued a specific form for filing a corrective tax return. A taxpayer may submit the correction in a document accompanied by supporting documents, such as:

  • A sworn statement certifying that the correction covers all income omitted for the past 10 years;
  • A detailed description of the origin of the undeclared income, along with any relevant supporting documents;
  • A certificate from any entity providing a detailed list of the taxpayer’s deposited income (e.g. a bank certificate); or
  • Amended annual accounts (for legal entities).

Although one corrective return should be filed for each tax year concerned, the tax administration may decide to relax this requirement and allow taxpayers to submit a single tax return/report for all of the tax years concerned.

Affected qualifying taxpayers should consider taking advantage of the opportunity to voluntarily rectify their tax affairs. It is likely that once the amnesty period expires, the tax administration will increase its audit activities, and, given the 10-year statute of limitations for issuing an assessment and the stringent potential penalties, the consequences for a taxpayer that has not standardized its tax affairs could be severe.

Source: Deloitte