If this animal is only 12 cm, it is still a juvenile and would have a burrow about 4 cm in diameter. I would go with 5 cm ID pvc. However, a natural burrow would be better. The sand bed would only have to be about 15 cm and as the animal grows you can slowly add more sand on top. I've done this many times. Alternatively, insert a glass or plastic panel along one side of a 50 - 80 L tank leaving a 10 cm wide compartment. Fill this will about 15-20 cm of sand and put rock in the rest of the tank. Fill the tank with seawater a bit above the panel. Alternatively, drill some 1 cm holes in the top 5 cm of the panel and fill to just below the top edge of the panel. This will hold the animal in the sand compartment until it can dig its burrow. If in the process of digging the burrow the animal exposes the burrow along the side, put some black tape and/or plastic on the outside wall to block the light. This will make it easy to occasionally check on the animal when it molts, etc.
We has several Lysiosquillina from 5 to 35 cm living in these types of aquaria and they do very well. L. m are tough and can handle less than perfect water, so don't worry too much about this as long as you start with really clean coral sand.
Roy