Luxembourg: Luxembourg signs FATCA agreement with the US

Samantha Merle

Having agreed on its content by the end of February, Luxembourg and the US signed an intergovernmental agreement (IGA) implementing the Foreign Account Tax Compliance Act (FATCA) on March 28. Luxembourg and the US negotiated a Model 1 IGA, requiring the Luxembourg tax authorities and the US Internal Revenue Service (IRS) to exchange information automatically on accounts held by US citizens and by persons resident in the US in financial institutions resident in Luxembourg. The IGA is reciprocal, which means the US will also have to report account information about Luxembourg individuals and entities in the US to the Luxembourg tax authorities. The IGA will enter into force either on the date of Luxembourg's written notification to the US that Luxembourg has completed its necessary internal procedures for the entry into force of the IGA, or on the date of the US written notification to Luxembourg that its applicable procedures for ratification of the amending protocol to the 1996 income tax treaty, signed on May 20 2009, have been satisfied, whichever date comes last.

To date, most of the agreements concluded by the US are Model 1 IGAs. Under the Model 1 IGA, the information transits from the foreign financial institution to the IRS via its domestic authorities whereas the Model 2 IGA provides for a direct communication of the information from the foreign financial institution to the IRS and implies the adoption into domestic law of the extensive and complex Final Regulations. In May 2013 Luxembourg announced that a Model 1 would be chosen for the adoption of an IGA.

Following the signature of the IGA, the Luxembourg tax authorities released a newsletter which announces the practical modalities of information exchange under FATCA. The tax authorities have put in place two working groups including different actors from the public and private sectors who will work together on the implementation of automatic exchange of information under the IGA. While the first working group will have to deal with general implementation issues, the second working group will address more practical and technical issues regarding electronic communication of information between the reporting financial institutions and the tax authorities. In a next step, the Luxembourg tax authorities will provide some more detailed information in circulars to be released.

Samantha Merle (samantha.merle@atoz.lu)

ATOZ – Taxand

Tel: +352 26 940 235

Website: www.atoz.lu