1. Exchange of information – When do we have to start worrying ? Jean Schaffner – 15 June 2011 – BCC/STEP Conference 4259530

2. 1. What should we worry about ? exchange of information foreseen in the tax treaties mutual assistance for the recovery of claims relating to tax (directive 16 March 2010, 2010/24/UE) administrative cooperation in the field of taxation (directive 15 February 2011, 2011/16/EU) taxation of savings

3. 2. The exchange of information The OECD Model Convention serves as a basis for most double tax treaties (particularly in Luxembourg) Allows the exchange of information for the application of the convention and of domestic law for all taxes However: no administrative measures at variance with the laws and administrative practice of the States involved; no information which is not obtainable under the laws or in the normal course of the administration of the States involved; no information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public). Exchange of information for tax purposes

4. Since the law of 31 March 2010 : 2. Exchange of information (continued)  on condition that the tax treaty integrates article 26 (5) OECD Objective: Luxembourg does not want to be blacklisted by OECD protection of the taxpayers’ privacy (cf. opinion of the European data protection supervisor) workload on banks organisation of the judicial system The exchange of information is possible if: Information is held by a bank or other financial institution, nominee or person acting in an agency or fiduciary capacity Information relates to the ownership interest of a person

5. Two legislative phases Bill n° 6072, adopted on 31 March 2010  approves 20 tax treaties Bill n° 6257  approves 7 tax treaties (Portugal, Japan, Hong Kong, Sweden, Saint Marin, Barbados and Panama) 2. Exchange of information (continued)

6. 3. Framework and objectives :  a well-balanced and reasonably protective framework is necessary, with (i) precise conditions and (ii) efficient corrective steps  protection of the taxpayers’ privacy  avoid searches that would be too broad, with no grounds (fishing expeditions)

7. Tax purpose for which the information is sought: 1)confirmation that the requesting party has indeed had recourse to every available means in order to obtain the information on its own territory 2)the information sought must have foreseeable relevance (here the comments to the bills mention that the information must refer to a specific situation AND that a specific transaction or evidence of possible transactions must have been identified as having a connection with Luxembourg) 3)grounds for believing that the information requested is held in the requested party => tax investigation + in depth search 4)(to the extent it is known) the person who is supposed to have the information [German version: “Name und, soweit bekannt, die Adresse…”] In my view, these conditions however have to be read together  prevent fishing expedition 4. Conditions for the exchange under a tax treaty, based on 2002 OECD model agreement on exchange of information

8. Commentaries to the OECD 2002 model agreement on exchange of information in tax matters contain useful information and examples about: Fishing expedition : taxpayer (resident of country X) transfers money first to country A and then from country A to country B: information may pertain to bank A in country A and bank B in country B identity of account holder: account number could be sufficient But directive on administrative cooperation in the field of taxation (2011/16/EU) 4. Conditions for the exchange under a tax treaty (continued)

9. 5. EU context A.EU directive on administrative cooperation (2011/16 of 15 February 2011): identity of the person concerned and grounds of the request must be provided But not the holder of the information  lower standard than OECD ?  applicable to the law of 31 March 2010  comparison between the French and German wordings contained in the tax treaties: (to the extent it is known) the person who is supposed to have the information [German version: “Name und, soweit bekannt, die Adresse…”] Problem of level playing field with OECD  1) Fishing expedition:

10. 5. EU context (continued) 2) Mandatory automatic exchange of information: limited to certain categories of income: NR income from employment NR pensions directors’ fees life insurance real estate property  bank accounts are not concerned Luxembourg will apply as early as 2013 the mandatory automatic exchange of information concerning incomes from employment and pensions, and from 2015 on directors’ fees Mandatory automatic exchange of information applies only to information readily available on file with the State providing the information

11. 5. EU context (end) 3) Spontaneous exchange, especially if (article 9): loss of tax income in another State tax reduction or exemption likely to give rise, in an other State, to an increase in tax or in liability to tax artificial transfer of profits information may be useful in assessing liability to tax in the other State B.Directive concerning mutual assistance for the recovery of claims (2010/24 of 16 March 2010) exchange upon request of any information that is foreseeably relevant in order to enable recovery of tax claims in the requiring State => no exception due to banking secrecy provisions => OECD standards ? = > relatively limited scope ….

12. 6. Savings Directive Savings Directive  Still version of 2003 (2003/48)  Scope to be extended to cover UCIs and SIFs intermediate tax haven companies (deemed transparency) trusts life insurance contracts  Still no exchange of information  WHT  but 35% directives Exchange of information savings UCIs