From 1 January 2021, Luxembourg reporting financial institutions will be subject to new filing and compliance obligations, increased penalties in case of non-compliance, and probably to more regular FATCA and CRS audits. The Luxembourg tax authorities published a recent newsletter clarifying these new CRS and FATCA obligations and sanctions introduced by the Law of 10 July 2020.
Please read our article below in order to be prepared to comply with the new CRS and FATCA obligations imposed on Luxembourg reporting financial institutions.
In a newsletter dated 10 July 2020, the Luxembourg direct tax authorities (Administration des Contributions Directes – "ACD") clarified the application of the Law of 18 June 2020 amending the FATCA and CRS legislations (the "Law").
New nil report obligation for CRS
The Law introduces a new obligation for Luxembourg reporting financial institutions ("RFI") to file a nil report to the ACD in the absence of CRS reportable accounts. This nil report was already required under FATCA law but was only recommended for CRS purposes. Only the non-reporting financing institutions (e.g. Exempt Collective Investment Vehicles for CRS) will be exempt from this nil reporting obligation.
In this regard, the ACD specifies that "Luxembourg Investment Advisors and Investment Managers" which benefit from a non-reporting status under FATCA but not under CRS will be required to file a nil report for CRS purposes while they are exempt from such an obligation under FATCA.
New explicit obligations for RFI
The Law makes certain compliance obligations explicit which, until now, were only implied or derived from the FATCA and CRS legislation.
In a nutshell:
- The RFI must not engage in practices which are designed to circumvent FATCA or CRS reporting;
- The RFI must keep records and evidence of the actions taken to comply with its FATCA and CRS due diligence and reporting obligations for a period of 10 years;
- The RFI must put in place policies, controls, procedures and IT systems in order to ensure the fulfilment of its FATCA and CRS due diligence and reporting obligations. These policies, controls, procedures and IT systems must be proportionate to the size and specificities of the RFI.
The Law introduces a lump sum fine of EUR 10,000 in the event of absence or late reporting for FATCA and CRS purposes. This lump sum fine will also apply to RFI which fail to file a nil report within the required deadline.
In addition to this lump sum fine, an RFI may be subject to a penalty of up to EUR 250,000 if an audit reveals any breach of its FATCA or CRS obligations. If there are any reportable accounts which the RFI has not reported or reported incompletely, the penalty may be increased by an amount of up to 0.5% of the unreported amounts.
- The ACD will have access, upon request, to the records of actions taken and evidence used, as well as to policies, controls, procedures and IT systems put in place by the RFI.
- The powers of investigation of the ACD shall expire 10 years after the end of the calendar year in which the RFI is required to report information.
As a reminder, the new obligations introduced by the Law will generally apply from 1 January 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.