Foreign Account Tax Compliance Act (FATCA)
FATCA was transposed into Luxembourg Law on 24 July 2015. It ratifies the execution of the Intergovernmental Agreement (IGA) signed between Luxembourg and the United States of America on 28 March 2014 as well as the related Appendices and Memorandum of Understanding. Reportable entities had to send their first reports pertaining to the financial year 2014 to the Luxembourg Tax Authorities no later than 31 August 2015.
In July 2015, ALFI issued a second Q&A to deal specifically with reporting and withholding issues in the context of FATCA. This publication supplements the first Q&A released in 2014, which dealt with the implementation of FATCA in the context of Luxembourg domiciled investment funds.
Common Reporting Standard (CRS)
Automatic exchange of information involves the systematic transmission of “bulk” taxpayer information by the source country to the residence country of a taxpayer. On 29 October 2014, 51 jurisdictions including Luxembourg signed in Berlin the Multilateral Competent Authority Agreement (MCAA), which is a multilateral framework agreement implementing CRS, to automatically exchange information between tax authorities. More jurisdictions have joined since.
The Luxembourg law implementing CRS in EU law entered into force on 1 January 2016. It transposed Directive 2014/107/EU (“DAC 2”) (amending Directive 2011/16/EU). DAC 2 requires financial institutions to implement reporting and due diligence rules. In December 2015, ALFI issued recommendations on due diligence rules in this context of DAC 2/CRS. ALFI also released three templates of self-certification forms which reporting financial institutions may wish to consider when dealing with their clients and investors in a FATCA and/or DAC 2/CRS context.
Base Erosion and Profit Shifting (BEPS)
BEPS is the OECD’s plan(1) to combat “artificial” tax planning by corporations. On 5 October 2015, the OECD issued 13 reports on 15 BEPS Actions previously identified. This package was subsequently endorsed by the G-20 in November 2015. The next step is for the OECD to develop a monitoring and compliance mechanism.
BEPS Action 6 is most relevant to funds: “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances”. In its 2010 OECD Report “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles”, the OECD referred to collective investment vehicles as “funds that are widely-held, hold a diversified portfolio of securities and are subject to investor-protection in the country in which they are established”.
In its responses to the various OECD consultations, ALFI took the view that collective investment vehicles (CIVs) set-up as UCITS (or non-CIVs with similar characteristics) should automatically qualify as resident under article 1 of the OECD Model Tax Convention as well as for the Limitation on Benefits rule. CIVs and UCITS are principally set up for genuine commercial reasons and given their economic characteristics it is reasonable to conclude that CIVs cannot, in principle, be effectively used for “treaty shopping”.
In its final report, the OECD however came to the conclusion that the suggested wording of the Limitation on Benefits rule is consistent with the conclusion of its previous 2010 CIV Report and that as such, there was no need to address issues related to CIVs. ALFI will continue to monitor the situation.
(1)OECD Report Action Plan on Base Erosion and Profit Shifting dated 12 February 2013