The U.S. and Luxembourg have signed the Foreign Account Tax Compliance Act (FATCA) agreement and agreed to Improve International Tax Compliance.
Enacted on March 18 2010, the Foreign Account Tax Compliance Act aims to reduce tax evasion by U.S. persons (individuals and entities) by obliging reporting to the U.S. Internal Revenue Service (IRS) of all U.S. persons’ income from financial assets held outside the United States. All non-U.S. financial institutions, including banks, brokers, custodians, management companies and investment funds, shall either: report to the IRS certain data on U.S. accounts they hold, or suffer a 30% U.S. withholding tax on certain payments to foreign financial institutions or with respect to the so called “recalcitrant accounts”.
To implement the act, the two countries’ negotiating teams signed a model 1 intergovernmental agreement (IGA) on February 27 2014. The model 1 IGA specifically provides that the reporting to the IRS will not be carried out by every Luxembourg financial institution within the scope of FATCA, but by the reporting Luxembourg financial institution only. In addition, such a reporting will be made indirectly; i.e. through the Luxembourg tax authorities that will collect the required information from the Luxembourg financial institution and then cooperate with the IRS in order to transmit the information in accordance with the methods to be agreed upon between Luxembourg tax authorities and the IRS.
As part of the signing of the FATCA model 1 IGA the Luxembourg Tax Administration has set up two working groups bringing together different actors from the public and private sectors in order to implement the automatic exchange of information under this agreement.
The first working group focuses on general issues relating to the implementation of the agreement, while the second will deal mainly with technical questions regarding the electronic communication of information between reporting financial institutions and the Tax Administration (like communication channels, format etc.)
ALFI, the Luxembourg Funds Industry Association, says it welcomes the agreement and its implementation working group—comprising representatives of fund industry service providers—is finalizing a Q&A document which will serve ALFI members as a reference document when it comes to implementing FATCA.
U.S. And Luxembourg Sign FATCA Agreement
The U.S. and Luxembourg have signed the Foreign Account Tax Compliance Act (FATCA) agreement and agreed to Improve International Tax Compliance.