Financial account information related to non-residents are subject to an automatic exchange of information pursuant to the OECD Common Reporting Standard (CRS).
The purpose of the CRS is to detect and discourage tax evasion through a multilateral network of tax cooperation among national tax authorities. In this context, the CRS aims at establishing one global standard, which stimulates the move towards automatic exchange information related to offshore financial accounts.
This new standard, which draws on many aspects of the Model Intergovernmental Agreement developed between France, Germany, Italy, Spain and the United Kingdom on the one hand and the United States on the other hand regarding the implementation of FATCA, is much wider in its scope than the former EU Savings Directive and brings interest, dividends, as well as account balances and sales proceeds from financial assets within the scope of the automatic exchange of information.
The implementation of the CRS by more than 100 jurisdictions reflects the broad consensus that has been reached at international level regarding the fight against tax evasion. Luxembourg is an early adopter of the CRS and committed to undertake the first exchanges of information in 2017 on the basis of financial account information relating to the year 2016. Financial institutions established in Luxembourg will play a central role in the fulfilment of the commitments taken by Luxembourg to implement the CRS. Most of, if not all, the information to be exchanged under the CRS is indeed not directly available to the Luxembourg tax authorities and should therefore be obtained from financial institutions according to the rules and procedures set out in the CRS, as translated into Luxembourg law.
In this context, the obligations vesting to Reporting Financial Institutions (i.e. financial institutions that are subject to reporting requirements under the CRS) are essentially twofold.
First, Reporting Financial Institutions have due diligence obligations on accounts they maintain. Indeed, a Reporting Financial Institution should link all its account holders with a tax residence. In addition, for account holders that are entities, Reporting Financial Institution should identify their CRS status and, for the entities that qualify as Passive NFEs, the tax residence of their Controlling Persons. These obligations include a monitoring over time of the situation of their customers so as to detect any potential change of their status under the CRS (i.e. changes of circumstances).
Second, Reporting Financial Institutions, as this denomination indicates, have reporting obligations. These obligations consist of an obligation to report, on a yearly basis, to the Luxembourg tax authorities a set of pre-defined personal and financial information regarding any reportable account they maintain. The ABBL is committed to foster a compliant and consistent implementation of tax transparency rules in Luxembourg. The ABBL was notably a member of the European Commission’s expert group on the Automatic Exchange of Financial Account Information until its term on 30 June 2017.
The ABBL interacts on a regular basis with members and the authorities to discuss the implementation of the CRS in Luxembourg. These discussions materialised in the issuance of technical guidance for use by members. This guidance constitutes a local complement to the extensive commentaries published by the OECD.