On 20 February 2020, a draft law was presented to the Luxembourg Parliament with the purpose of introducing amendments to the Luxembourg legislation implementing the Common Reporting Standard (“CRS”) and the Foreign Account Tax Compliance Act (“FATCA”), the two main frameworks for automatic exchange of information in Luxembourg.
The amendments impose additional obligations on Luxembourg reporting financial institutions (“RFIs”) and foresee the possibility of lump sum penalties in case of non-compliance.
CRS and FATCA obligations for Luxembourg RFIs
The draft law will require every Luxembourg RFI to:
- refrain from implementing practices for the purposes of circumventing exchange of information;
- set up policies, controls, procedures and IT systems, proportionate to the RFI’s nature, specificities and size, to ensure the fulfilment of the RFI’s CRS and FATCA reporting and due diligence obligations;
- maintain registers of the actions undertaken and of evidence relied upon to ensure the execution of reporting and due diligence procedures for 10 years after the end of the year, during which the RFI was required to report the information under the CRS and/or FATCA; and
- submit a nil CRS report to the Luxembourg tax authorities with respect to any calendar year during which the RFI maintained no CRS reportable account, in the form required by the Luxembourg tax authorities and by 30 June of the following year (The existing obligation to file a nil FATCA report, where applicable, will continue to apply and will now be expressly included in the FATCA Law).
The comments to the draft law clarify that RFIs may use service providers to fulfil the above-mentioned obligations, although the RFI remains responsible for their fulfilment and should ensure that any service providers which they engage for this purpose have policies, controls, procedures and IT systems in place that meet the RFIs’ compliance responsibilities.
New penalties for non-compliance with CRS and FATCA rules
A flat penalty of EUR 10,000 is foreseen in case an RFI does not file a CRS report (neither a nil report nor a report reporting accounts) by the reporting deadline. In addition, the scope of reasons for levying the maximum penalty of EUR 250,000 is broadened such as not only to apply to cases of missing or incomplete reporting, but also in case of non-compliance with any of the other RFI obligations foreseen by the CRS or FATCA laws.
Powers of investigation of the Luxembourg tax authorities
Finally, the draft law also clarifies the powers of investigation of the Luxembourg tax authorities and extends them to allow, upon request, and for a period of 10 years, access to records of the actions undertaken, evidence relied upon for the performance of the reporting and the due diligence procedures, the policies and procedures as well as the IT systems of the RFI.
Entry into force
The above changes, which still have to pass through the legislative procedure and could thus be subject to amendments, are intended to apply as from 1 January 2021, if adopted in the course of this year.