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Luxembourg: Luxembourg’s transition from the EU Savings Directive to CRS

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Alain Verbeken

Alina Trotska

Luxembourg is amending its domestic laws in line with EU changes to repeal the EU Savings Directive and introduce the common reporting standard (CRS) to facilitate the automatic exchange of tax information (AEOI).

Luxembourg's Law of July 23 2016 repealed the former Law (of June 21 2015) that transposed the EU Savings Directive into domestic law. The July repealing legislation applies retroactively from January 1 2016 to coincide with the amended EU directive on the mandatory AEOI between tax administrations, which generally required EU member states to introduce the CRS provisions throughout the EU from January 1 2016. However, even though the Savings Directive has been repealed, it continues to have some residual effects.

The Savings Directive required the exchange of information between tax administrations when interest payments were made in one EU member state to an individual resident (or certain entities) in another member state. The Directive was repealed at an EU level to coincide with the introduction of the CRS, because the new standard rendered the Savings Directive obsolete. This is because CRS-based reporting imposes obligations on a broader range of persons and requires the AEOI on a broader range of financial income (not only interest, but also dividends, gains and sales proceeds).

The repeal of the Savings Directive and its replacement with the CRS imposes wider obligations to report information regarding payments in relation to EU member states, as well as to certain non-EU states, and some transition rules apply.

Reporting to EU member states

As a result of the repeal of the Savings Directive, the final reports required under that Directive were required to be transmitted to the Luxembourg tax authorities by March 20 2016 by those persons qualifying as "paying agents" within the meaning of the Directive.

From January 1 2016, CRS-based reporting in Luxembourg generally applies to a broader range of individuals than those that qualified as paying agents under the Savings Directive. This includes banks, investment funds (whether they pay interest directly or not), life insurers commercialising cash value or annuity contracts, certain holding companies (under different and broader circumstances than those that were applicable to be considered a paying agent under the Savings Directive), and certain service providers.

Reporting to non-EU countries

To maintain a level playing field between EU and non-EU financial centres, savings taxation agreements were concluded in 2003 between the EU and Andorra, Liechtenstein, Monaco, San Marino and Switzerland, and – on a bilateral basis – between the EU member states and the EU dependent and associated territories (the British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Montserrat, the (former) Netherlands Antilles, Turks & Caicos Islands, etc.).

CRS-based agreements replacing the savings taxation agreements already have been concluded between the EU and the third countries listed above (applicable from either the 2016 or 2017 calendar year). However, the situation is more complicated for the dependent and associated territories. The bilateral savings taxation agreements concluded between these territories and Luxembourg were ratified through a separate law (of June 21 2005) that has not yet been abolished and, accordingly, some of the bilateral savings taxation agreements still may apply for the 2016 calendar year. A switch to CRS-based reporting should apply in relation to these territories from calendar year 2016 or 2017, but only when these territories become reportable jurisdictions for CRS purposes.

Procedural matters

Certain provisions of the otherwise-abolished law that transposed the Savings Directive into Luxembourg law are also temporarily retained during a transition period, essentially to:

  • Allow corrections to the final exchanges of information under the law that were due by March 20 2016 regarding the calendar year 2015; and

  • Allow the issuance in 2016 of specific Savings Directive certificates, since Austria is allowed to continue to apply savings withholding tax until the end of 2016, and will switch to the CRS by January 1 2017.

Alain Verbeken (alverbeken@deloitte.lu) and Alina Trotska (atrotska@deloitte.lu)

Deloitte Tax & Consulting

Website: www.deloitte.lu

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