Administrative fines provided for by paragraphs 166 (3), 396 (1) and 402 (1) AO
The AO provides for three different kinds of violations susceptible to trigger administrative sanctions.
In a nutshell, these are:
- inaccurate or incomplete tax return: §166 (3) AO sanctions willful defaults or inaccuracies committed by the taxpayer in its tax return (or willful default of tax return). The provided fine ranges from 5% to 25% of the evaded taxes;
- simple tax evasion (fraude fiscale simple): §396 (1) AO sanctions the intentional procurement by a taxpayer (for itself or someone else) of undue tax advantages (tax reduction or undue tax refund). The provided fine ranges from 10% to 50% of the evaded taxes; and
- involuntary tax evasion (fraude fiscale involontaire): §402 (1) AO covers the tax evasion, which is not intentional but due to the taxpayer's negligence. The provided fine ranges from 5% to 25% of the evaded taxes. The sanction can concern the taxpayer itself but also its representative(s) (f.i. lawyer, tax advisor), which acts as an intermediary in the relationship with the tax authorities.
Administrative sanctions must be paid within 1 month of the notification of the tax office's decision, which can be challenged by way of complaint (reclamation) in the meaning of §228 AO within a 3-month delay following its issuance.
The decision to impose an administrative fine (and its amount) ultimately belongs to the chief of the tax office and is to be made on a discretionary basis. In this respect, the Circular specifies that the decision must be the result of a practical and explicit assessment of the particular facts, having regards to equity and opportunity. In any case, the amount of the fine should be tailored to the circumstances, proportionate to the violation found, as well as to the taxpayer's ability to pay.
Criminal tax offences provided for by paragraph 396 (5) and 396 (6) AO
In addition to the violations that can trigger administrative sanctions, the AO provides for certain misconducts susceptible of prosecution as criminal offences by judicial authorities.
These are the following:
- aggravated tax evasion (fraude fiscale aggravée): §396 (5) AO qualifies as such any wilful tax evasion for which the evaded tax (or undue refund) exceeds (i) 25% of the tax due (while being at least equal to EUR 10,000) or (ii) EUR 200,000. The aggravated tax fraud is a criminal offence punished by 1 month to 3 years of imprisonment and a fine ranging from EUR 25,000 to up to 6 times the amount of evaded taxes (or undue reimbursement).
- tax fraud (escroquerie fiscale): §396 (6) AO is characterized by a tax evasion involving a significant amount of tax evaded (either having in respect of the yearly taxes due or in terms of absolute amount) and committed with the systematic use of fraudulent manoeuvres aiming at hiding relevant facts to the authorities or persuading them of inaccurate facts. Tax fraud is punished by 1 month to 5 years of imprisonment and a fine ranging from EUR 25,000 to up to 10 times the amount of evaded taxes (or indue reimbursement.)
The Circular specifies that tax evasion in respect of an amount greater than EUR 200,000 implying the use of fraudulent manoeuvres shall be qualified as tax fraud by tax offices.
When, during the taxation procedure, violations that qualify as criminal tax offences are identified, then the tax office provides the case to the judicial authorities (parquet) for prosecution.
Cooperation between direct tax authorities and judicial authorities
The Circular also emphasizes on the cooperation between the Luxembourg tax authorities and the judicial authorities provided for under the law of 19 December 2008 on inter-administrative and judicial cooperation.
Such cooperation notably consists in the obligation for the tax offices/services to:
- provide information to the judicial authorities and to the Cellule de renseignement financier (CRF) upon their demand; and
- notify the public prosecutor whenever criminal tax offences (i.e. aggravated tax evasion or tax fraud) and other crimes or offences are discovered during the taxation procedure (including crimes related to anti-money laundering and common law crimes or offences).
Such cooperation remains mutual to the extent that the judicial authorities and the CRF must also communicate to the Luxembourg tax authorities any information susceptible to be helpful in order to establish an accurate imposition of the taxes. The Circular indicates that tax offices have an obligation to process the information received in this respect and to proceed with the imposition of administrative fines or with a denunciation to the public prosecutor when required.
Finally, the Circular reminds that authorities, as well as any professional in the meaning of the law of 12 November 2004 relating to the fight against money laundering and financing of terrorism, have in any case the obligation to report a suspicion to the CRF when they know, suspect or have reasonable grounds to suspect that funds, transactions or a fact of which they are aware are linked to money laundering or financing of terrorism.
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