The agreement between the Government of the United States of America and the Government of the Grand Duchy of Luxembourg to Improve International Tax Compliance and to Implement FATCA (Foreign Account Tax Compliance Act) has been signed today, Friday March 28, 2014 in Luxembourg.
On 27 February 2014, the Luxembourg and United States negotiating teams agreed on the substance of the Model 1 Agreement.
ALFI welcomes the signature of this Intergovernmental Agreement (IGA).
The association has been working hard to ensure that its members are best prepared for the implementation of FATCA. A Q&A document is being finalized by ALFI's FATCA implementation working group. The working group comprises representatives of asset managers, management companies, securities service providers, audit firms, law firms, the Luxembourg Pension Funds Association and information management firms. The Q&A document will serve ALFI members as a reference document when it comes to implementing FATCA.
As part of the signing of the FATCA Model 1 intergovernmental agreement between Luxembourg and the United States dated 28 March 2014, 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.)
For more information, please refer to the Tax Administration website www.impotsdirects.public.lu.
The texts of the Memorandum of Understandings as well as the Intergovernmental Agreement are available on the website of the Ministry of Finance.
The Foreign Account Tax Compliance Act is part of the United Sates Hiring Incentives to Restore Employment Act (the “HIRE Act”), enacted on 18 March 2010. The HIRE Act added Chapter 4 of Subtitle A to the U.S. Internal Revenue Code. FATCA 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 (the “foreign financial institutions” - including banks, brokers, custodians, management companies and investment funds) shall either (i) report to the IRS certain data on U.S. accounts they hold, or (ii) suffer a 30% U.S. withholding tax on certain payments to foreign financial institutions or with respect to the so called “recalcitrant accounts.
In order to implement FATCA, the IRS and the US Treasury expect to rely on intergovernmental agreements (IGA) to be signed between the US and foreign countries. To that end the US Treasury released two forms of IGAs (referred to as Model 1, or Model 2). The IGA Model 1 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 FI 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 Reporting FI 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. Consequently, Reporting Luxembourg FI do not need to enter into a contractual relationship with the IRS, as would be the case under IGA Model 2, but only to register if they qualify as Luxembourg Reporting FI.