In the current international context where tax transparency has been made an absolute priority, there is high demand for exchange of information on tax matters. Thus, whether at a bilateral, multilateral or at a European level, significant progress has been achieved in order to facilitate the exchange of information.
The “Foreign Account Tax Compliance Act” or “FATCA” is a US law aiming at reinforcing the obligations of information exchange for the financial institutions towards the US tax authorities (“IRS”) in order to subject to US taxation the income derived by the US residents and citizens from these financial institutions. The financial institutions who do not comply with the FATCA regulations incur a withholding tax of 30% on US income that is paid to them.
For the ease of the implementation of FATCA, the FATCA agreement (the “Agreement”) providing for an automatic exchange of information between Luxembourg and the USA was signed in Luxembourg on 28 March 2014.
The Agreement was approved by the law of 24 July 2015.
On 31 July 2015, the Luxembourg tax authorities (“Tax authorities”) issued the administrative circulars ECHA – n°2 and n°3 (the “Circulars”). The Circulars provide clarifications and/or precisions on several issues such as the definition of the “Financial Institutions”(1), the “Financial Accounts”(1), the due diligence obligations, the information to be communicated and the timing as well as the most favoured nation clause and the effective implementation of the FATCA measures.
Numerous specific issues were also addressed. For example, a Luxembourg financial holding company or SOPARFI, classified as a main rule as a “Passive Non-Financial Foreign Entity”(1), may be regarded, in certain cases, as an “Active Non-Financial Foreign Entity”(1) or an “Investment Entity”(1). In the latter case, discharges of the duties provided for by FATCA may, under conditions, apply.
It is worth emphasizing that the Luxembourg complementary pension plans, provided by the law of 8 June 1999 (2), are excluded from the “Financial Account” definition (1) and are, therefore, out of scope of FATCA. This results from the very close similarities between the Luxembourg Complementary Pension Plans and the Belgian ones, the latter also being out of scope of the intergovernmental agreement concluded between Belgium and the USA.
- Common reporting standard for automatic exchange of information or CRS
The bill of law n° 6858 relating to the automatic exchange of financial account information in tax matters was submitted to the Parliament on 14 August 2015.
This bill of law pertains to implement the directive 2014/107/UE modifying the directive 2011/16/UE dealing with the automatic and mandatory exchange of information in tax matters in domestic law and to introduce the new worldwide standard for automatic exchange of information conceived by OECD and approved by the last G20 summit.
- Automatic exchange of information on advance tax agreements or “tax rulings”
On 18 March 2015, the European Commission made a proposal for a directive aiming at introducing automatic exchange of information on tax rulings between the EU Member States in order to tackle tax evasion by companies and unfair tax competition within the EU.
On 6 October 2015, the EU Member States unanimously agreed to the automatic exchange of information on tax rulings. The details of the final version of the directive are currently being finalized. In any case, the delay for the EU Member States to implement the new provisions in domestic law expires at the end of 2016. Therefore, the new measures should enter into force on 1 January 2017.