New CSSF Circular 17/650 widens the application of AML/TF legislation to certain primary tax offences
28/02/2017

The Luxembourg law of 23 December 2016 on the 2017 tax reform (the TRL) extends the money laundering predicate offence to aggravated tax fraud (fraude fiscale aggravée) and tax swindling (escroquerie fiscale). More specifically, such law transposes the revised Financial Action Task Force (FATF) standards dating back to 2012/2013 and Directive 2015/849/EC of 20 May 2015 relating to the prevention of the financial system against money laundering and terrorist financing (AML/TF).

Overview of tax elements

Situation before the adoption of the TRL
Historically, the tax fraud was considered as a criminal offence in Luxembourg. In 1993, a new concept of tax fraud, the tax swindling, was introduced into domestic law. From this point, the Luxembourg law used to distinguish between two main tax offences: the tax fraud (fraude fiscale) which was no more treated as a criminal offence, and the tax swindling which became a criminal offence.

Tax fraud and tax swindling have identical features. They both require a (i) breach of law (élément matériel), either through action or omission and resulting in the procurement of a reduced tax amount or of any other tax benefits not foreseen by the law as well as (ii), the element of intention, meaning the offence is willingfully committed (élément intentionnel).

However, additional elements are required, from a Luxembourg criminal and tax perspective, to characterize tax swindling. Such elements generally evidence the seriousness of the offence, by using systematic maneuvers. 

In practice, the qualification of the offence may be difficult to assess and can only be determined on a case-by-case basis. 

Situation after the adoption of the TRL
The Luxembourg law now distinguishes three types of tax fraud: the “simple” tax fraud (only) subject to administrative sanctions, the aggravated tax fraud and the tax swindling which both qualify as criminal offences. 

Applicable thresholds
The aggravated tax fraud applies where the tax avoided or the tax unduly refunded either (i) exceeds EUR 10,000 and represents more than a quarter of the tax normally due or refunded or (ii) exceeds EUR 200,000. This fraud may be punished by imprisonment (from a month up to a term of three years) and a fine ranging between EUR 25,000 and six times the amount of the taxes avoided.

Tax swindling applies where the amount of tax due or in relation to annual tax due is substantial and is proved to have been reached through the use of systematic fraudulent tactics aiming to hide information from the tax authorities. The tax swindling may be punished by imprisonment (to a month up to a term of five years) and a fine ranging between EUR 25,000 and ten times the amount of the taxes avoided.

Anti-money laundering and KYC aspects

Extension of the scope of anti-money laundering and terrorist financing offences

The TRL amended Article 506-1 of the Criminal Code (Code Pénal) so that all professionals subject to AML/TF obligations shall now take into account the two aforementioned predicate tax offences within the framework of their professional obligations, e.g. KYC requirements or cooperation with tax authorities.

CSSF Circular 17/650 was drafted jointly with the Cellule du Renseignement Financier (financial intelligence unit, CRF) and aims at (i) clarifying the practical application by CSSF-supervised providers and (ii) providing a list of indicators to assist the relevant professionals as follows:
 

Application in time: For new business relationships starting 1st January 2017, the professional must obtain information on the object and the nature of such relationship, including the committed funds, so as to form a judgement and avoid an abuse from the relationship aiming at committing a predicate tax offence in Luxembourg or abroad. This also applies to current relationships as risks must be assessed at all times of the relationship.

Scope: it applies to Luxembourg residents and non-residents. As regards Luxembourg, all direct taxes are concerned (direct taxes, registration and death duties, and value added rax (VAT)). Vigilance obligations also apply to foreign tax obligations provided that they are criminally sanctioned (minimum thresholds requirements as foreseen in the Luxembourg legislation are then disregarded).

Internal organisation: internal AML/TF monitoring policies must be extended to the laundering of tax offences, e.g. risk assessment of the activity, the customer base and collection of relevant information.

• Cooperation with authorities: professionals must without delay inform the CRF via a suspicious transaction report (déclaration de soupçon) whenever they know or suspect that the laundering of a predicate tax offence is being committed. Suspicion can be based on the person, the nature or purposes of the relevant transaction and on various indicators (further detailed in Annex I of the Circular) such as unjustified use of shell companies, interposition of persons without explanation as to their utility, inconsistent financial transactions, invoices inconcistency, refusal to provide justifications, money transfer abroad and loan repatriation,…
   
• Suspicious transaction report threshold: such report must be made even though the relevant professional (declaring the suspicious transaction) is not able to qualify the reported tax offence (i.e. either the aggravated tax fraud or the tax swindle) as soon as either of a quarter of the outstanding tax, EUR 200,000 or a substantial amount exceeds the accrued tax (plausible circumstances are sufficient). Below EUR 10,000, there is no obligation to report to the CRF.
   
• Complicity: the perpetrators can be taxpayers or undue beneficiaries of tax reimbursements but also persons giving instructions in this respect or wilfully providing assistance to the perpetrators for this purpose and considered as accomplices. The mauney laundering tax offence attempt is sanctioned the same way as the offence itself and consists of the commencement of the commission (commencement d’exécution) not followed by a voluntary retirement (désistement volontaire). In practice, the commencement of the commission is the wilful submission of an erroneous tax declaration to the tax authorities. In this context, a report must be made to the CRF as soon as the circumstances lead the professional to suspect a fraudulent declaration.
   
• Further indicators: Annex I of the Circular provides examples of indicators generally reflecting an unusual situation, i.e. unusual income, unusual rise in net worth, unusual debt, unusual transactions, etc. Unusual situations can be the following non-exhaustive list: a legal person is established in a jurisdiction that is not compliant with AEOI/CRS/FATCA reporting, a client’s company is subject to multiple statutory changes in a short period, the legal structure to be implemented is different from the usual tax residence, a transaction occurred at an underestimated price, drastic increase of flows incur on previously dormant bank account, payment of fees to foreign non-commercial companies without economic purpose.

Zie ook : CMS Luxembourg ( Mr. CĂ©dric Buisine ,  Mr. Olivier Amrein ,  Mr. William Jean-Baptiste ,  Ms. Lucie Fanjeaux )

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