The draft legislation will now be submitted to parliament, paving the way for the ratification of the bilateral Model 1 intergovernmental agreement (IGA), which Luxembourg and the US signed almost a year ago on March 28 2014.
"This is just the next logical step," said Gerard Laures, a partner of KPMG in Luxembourg. "The signing of the IGA - indeed, the start of negotiations on it - was the clear message that Luxembourg would apply FATCA and full transparency. This is just a technical step to move the process forward."
"Luxembourg is fully committed to the fight against tax fraud and tax evasion and continues to make a series of concrete commitments to this end, not only vis-à-vis the United States," said Philipp von Restorff, a spokesman for the Luxembourg Bankers' Association (ABBL). A firm supporter of this policy, the ABBL was – and remains – one of the main proponents for the conclusion of a FATCA intergovernmental agreement between Luxembourg and the United States. In this context, the adoption by the Luxembourg Government of a draft law ratifying the Luxembourg IGA is undoubtedly a positive development."
The IGA will allow Luxembourg financial institutions fully comply with FATCA by sending certain information about payments to their US account holders to the Luxembourg tax authorities, who will then send it on to the US authorities.
After the Luxembourg parliament has ratified the legislation, it is thought the tax authorities will finalise two draft circulars it released earlier this year relating to administrative aspects (in French) of compliance with FATCA, such as:
the accounts that have to be reported;
the definition of an investment entity;
the euro-dollar currency conversion to be used by reporting Luxembourg financial institutions; and
the technical aspects of how the information will be transmitted.
As soon as this is done, automatic exchange of information under FATCA can take place. It is expected the first transmission of information from reporting Luxembourg financial institutions to the Luxembourg tax authorities will take place on June 30 next and the first such transmission from Luxembourg to the US will occur three months later, on September 30.
Automatic exchange of information will come as nothing new to Luxembourg financial institutions, Laures explained. "Exchanging information automatically has already been the reality since January this year under the EU Savings Directive as the withholding tax option does not apply anymore and next year we will have the Common Reporting Standard (CRS) and the EU Directive on Administrative Cooperation [which implements the CRS in the EU]. This is the new normal."
Von Restorff said that as well as guidance from the tax authorities, the ABBL and other bodies that represent different parts of Luxembourg's financial industry had issued handbooks to help their members fulfil their obligations under FATCA.
"We also think that the reliability and efficiency of the reporting tools available to Luxembourg financial institutions is a key element," he added. "In this respect, we welcome the draft technical specifications issued by the Luxembourg tax authorities earlier this year."
