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Luxembourg - Automatic exchange of information outlook - 16/04/2013


Since several years, the global push for increased tax transparency amplified significantly.  Further to this evolution, already in 2009, Luxembourg accepted to modify its bilateral tax treaty network to allow exchange of information upon demand according to OECD principles.

Since then, the pressure to move to automatic exchange of information increased.  
Developments such as FATCA had an additional catalyst effect in this respect.  All major financial centres and the most important trading nations will step into an intergovernmental agreement (IGA) with the USA in order to transpose FATCA obligations.

The majority of these countries (including most EU Member States) seem to move towards a so-called Model 1 IGA.  Under this model, automatic exchange of information with the IRS is implemented through local tax authorities.

The mechanics of exchange would thus be similar to those of the EU Savings Directive (EUSD), however the scope of information to be reported under FATCA is significantly different than what is reported under the current EUSD.

Luxembourg is one of the countries actively engaged in negotiations with the USA on an IGA.  Though no decision was taken yet by Luxembourg government on the type of IGA to be obtained (Model 1 referred to above or so-called Model 2, which is the model adopted by a.o. Switzerland), negotiations are currently moving ahead.

Luxembourg – Switching to automatic exchange under the EU Savings Directive as from 2015

Very recently, Luxembourg announced to switch to automatic exchange of information under the EUSD as from 2015 (i.e. interest income obtained in 2015 would be reported in 2016).  Until then, the transitional savings withholding tax regime under the EUSD will continue to apply.

Luxembourg and Austria are the only EU Member States currently applying savings withholding tax instead of automatic exchange of information.

To be noted that a number of other jurisdictions apply similar or equivalent measures to the EUSD, and that certain of these jurisdictions (such as Switzerland, Monaco, Lichtenstein) still apply a transitional savings withholding tax as well.

Finally, a draft amended EUSD is in the EU legislative pipeline since 2008.  The amended EUSD would broaden the scope of the current EUSD to a.o., an additional range of funds and insurance products, and introduce additional look-through rules regarding payments made to entities.

It can be expected that this amended EUSD will be on the agenda of forthcoming ECOFIN meetings.

However discussions are on-going on how to maintain the level playing field between EU Member States and third countries, especially those countries having already signed agreements to apply similar measures than those included in the EU Savings Directive (such as Switzerland, Andorra and Monaco).

Looking ahead –  Administrative Cooperation Directive / EU FATCA?

The Administrative Cooperation Directive of 2011 introduces, a.o., automatic exchange of information from 1 January 2015 regarding 5 categories of income and capital: income from employment, director's fees, life insurance products not covered by other Directives, pensions, ownership of and income from immovable property.

In a first stage, available information is exchanged.  However the Council may decide to introduce unconditional automatic exchange of information in respect of at least 3 of the 5 above-mentioned categories. On the basis of a new proposal by the Commission, the scope might be extended to dividends, capital gains and royalties.

Taking a page from the FATCA playbook, the UK, France, Germany, Italy, and Spain have just announced an agreement to develop a multilateral tax information exchange methodology among these G5 countries. The agreement is expected to allow for automatic exchange of financial information among the G5 countries and lays the groundwork for expanding multilateral automatic tax information exchange protocols to other European countries, including the G8.

The multilateral tax information exchange pilot would be based on the Model 1 IGA previously developed between the US and the G5.

It remains to be seen to what extent this new framework may be pushed within the EU.

If you have any queries regarding the above, please do not hesitate to contact us.

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