FATCA and CRS Updates for Luxembourg RFI

The Law amending the Luxembourg Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) was approved in June 2020, bringing it into line with the evaluation of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

As a result, from 1 January, 2021, Luxembourg Reporting Financial Institutions (RFI) will be subject to new filing and compliance obligations, increased penalties in case of non-compliance and the probability of more regular FATCA and CRS audits.

There will also be an alignment of FATCA and CRS reporting requirements by introducing an obligation to file a nil report for CRS, in the absence of reportable accounts. This means that:

• If the RFI fails to comply with this reporting requirement, the law introduces a lump sum fine of EUR 10,000 in the event of the absence of or late reporting for FATCA and CRS purposes.
• “Luxembourg Investment Advisors and Investment Managers” that benefit from a non-reporting status under FATCA but not under CRS will be required to file a nil report for CRS purposes while being exempt from such an obligation under FATCA.

New explicit obligations for Luxembourg RFIs:

• RFIs must not engage in practices to circumvent the reporting obligations under FATCA and CRS.
• RFIs must keep records of actions taken and supporting evidence used in a specific register in order to ensure the fulfilment of their reporting and due diligence obligations. The register shall be kept for a period of ten years as from the end of the calendar year in which it was required to communicate the information.
• RFIs are required to set up a compliance program that includes policies, controls, procedures and IT systems to ensure the fulfilment of FACTA and CRS due diligence and reporting obligations. This compliance program must be proportionate to the size and specifications of the RFI. This means that:
  • The RFI can rely on the procedures and IT systems of the service provider in charge of the investor on-boarding or reporting, providing that the RFI would be able to demonstrate that it exercises an oversight and control on those delegated functions.
  • The RFI must have written policies and procedures addressing due diligence and reporting obligations, including oversight, testing and control of delegated functions.

Penalties
The RFI may incur a fine of up to €250,000 if an audit reveals any breach of its FATCA or CRS obligations. The penalty can be increased by a maximum of 0.5% of the amounts not disclosed, if reportable accounts are not or are incompletely reported.

Audits
The Luxembourg direct tax authorities (ACD) will have access, upon request, to the records of actions taken and evidence used, as well as to the compliance program put in place.

The powers of investigation of the ACD shall expire ten years after the end of the calendar year in which the RFI is required to report information.
If you have any questions on these updates, please do not hesitate to reach out to your usual DMS representative or contact us below: