CRS & FATCA update
27 February 2020
Operational Tax News
CRS & FATCA Luxembourg Draft Law issued on 20 February 2020
On 20 February 2020, the Draft Law amending the Luxembourg Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) legislation was submitted to the Chamber of Representatives. This Draft Law follows the formal request of the Luxembourg Tax Administration (LTA) sent to several Luxembourg financial institutions in October 2019 requesting a list of documentation and further information to assess whether they are compliant with CRS and FATCA regulation.
The main amendments proposed are summarized below:
- New explicit obligations for Luxembourg reporting financial institutions
- In order to comply with the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the Organization for Economic Co-operation and Development (OECD), the Draft Law introduces an explicit obligation for Luxembourg reporting financial institutions to keep records of actions taken and supporting evidence used to ensure the due diligence and reporting obligations, for a period of ten years.
- Moreover, in the same spirit as the “adequate internal management requirements” provided by the Law of 12 November 2004 on the fight against money laundering and terrorist financing, the Draft Law mentions a requirement for Luxembourg reporting financial institutions to set up policies, controls, procedures, and IT systems to ensure the fulfilment of FACTA and CRS due diligence and reporting obligations. Those policies, controls, procedures, and IT systems must be proportionate to the size and specificities of these financial institutions.
- Nil report
- Currently, in the absence of reportable accounts, Luxembourg reporting financial institutions must send a zero reporting to the LTA for FATCA. For CRS, this nil report is not mandatory but recommended. The Draft Law aligns FATCA and CRS reporting requirements by introducing an obligation to send a nil report for CRS in the absence of reportable accounts.
- Based on the Draft Law, a Luxembourg reporting financial institution that would fail to comply with this obligation (i.e. no information communicated or zero-value message sent to the LTA) within the legal reporting deadline could suffer a lump sum fine of EUR 10,000.
- The Draft Law further provides that the LTA may have access, upon request, to records of actions taken, supporting evidence, policies, controls, procedures, and IT systems. Powers of investigation of the LTA shall expire ten years after the end of the calendar year in which Luxembourg reporting financial institution is required to communicate the information.
- Finally, the Draft Law further specifies that personal information (including Luxembourg taxpayers’ data) obtained by the LTA in the framework of a CRS/FATCA audit is used for the purpose of verifying the compliance of a Luxembourg reporting financial institution in terms of due diligence and reporting and cannot be used for taxation purposes.
Please do not hesitate to contact us should you have any questions.
The Draft Law can be retrieved via the following link.
Nenad Ilic, CFA