On 28 March 2014, Luxembourg and the US signed an intergovernmental agreement ("IGA") to implement automatic exchange of information in the context of the Foreign Account Tax Compliance Act, which gave birth to the Law of 24 July 2015 ("FATCA Law").
The purpose of the FATCA Law is to identify US persons who may be evading US taxes by investing through non-US financial institutions or other non-US entities.
The FATCA Law hereby creates a new information-reporting regime.
Considering that the FATCA could be contrary to some countries' legal provisions, especially in terms of banking and professional secrecy, the US entered into several IGAs with the affected jurisdictions.
Given the complexity of the IGA, the text of the Luxembourg Law has been simplified. The Luxembourg legislator produced a two-page law that refers to the IGA in general terms.
Under the IGA and the FATCA Law:
- The legal basis for the exchange of reportable information by Luxembourg financial institutions has been created;
- The transferred data relates to the identification of the financial account holder, the account number, the account balance or value, etc;
- Luxembourg reporting financial institutions shall inform each individual person qualifying as a US reportable person of this data transfer;
- Each individual person has the right to access the transferred data and be informed of any possible security breach concerning the data;
- A reporting financial institution may delegate the data collection to a third party service provider, however, the responsibility cannot be transferred;
- The data must be provided to Luxembourg tax authorities, which shall communicate them to the US entity, but cannot be used for taxation purposes in Luxembourg.
The following penalties are envisaged in case of breach of the FATCA Law:
- If Luxembourg financial institutions do not satisfy the reporting obligations, a fine of a maximum of 0.5% of the amount not reported, and no less than EUR 1,500;
- If there is a failure to respect due diligence requirements or implement reporting mechanisms, a maximum fine of EUR 250,000.
In view of the FATCA Law's date of publication, FATCA requirements should have been met by 31 August 2015.