Tax reporting services

What you need to know

With the need for fiscal transparency and information exchange, financial institutions (FIs) and its professionals must comply with many tax diligence measures.

In recent years, both the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) have become real challenges for the industry.

Although both regulations require FIs to collect information on all their account holders, there are noteworthy differences that are important to take into consideration.

Meanwhile, Qualified Intermediary (QI) remains a complex tax regime to incentivize account holders to invest in US securities while benefiting from reduced tax rates.

As these three regimes require a strong knowledge, robust processes, and capable technical systems to deal with their different obligations, Deloitte offers end-to-end services to identify, classify, and report declared persons and their relative revenues while maintaining the proper level of KYC and tax documentation.

QI

A Qualified Intermediary (QI) is a foreign institution that has entered into a qualified intermediary withholding agreement with the Internal Revenue Service (IRS) and pays US source income to its customers. A QI can be a financial institution or non-financial entity, as long as the QI is a party with a withholding agreement with the IRS.

Introduced in 2001 under the Revenue Procedure 2000-12, the QI regime has been implemented in order to ensure that US source income (such as dividends and interest) paid to non-US recipients is subject to tax at the appropriate tax rate.
The last release of the QI Agreement was performed on 1 January 2017 through the Revenue Procedure 2017-15.

FATCA

Luxembourg signed an Intergovernmental Agreement with the United States in 2014 and began exchanging information with the IRS as of September 2015 under the Foreign Account Tax Compliance Act (FATCA) Law.

FATCA is a US tax law requiring certain US withholding agents, foreign financial institutions (FIs), and non-financial foreign entities to report information about offshore accounts and investments held by US taxpayers to the IRS annually. It is an exterritorial regulation which therefore applies outside the US only.

The relevant institutions include banks, insurance and real estate companies, hedge funds, mutual funds, and private equity firms. These institutions must identify and declare US persons to the IRS on an annual basis. Luxembourg, having signed a Model 1 Intergovernmental Agreement, enforces required institutions to report to the local tax authorities who then report it to the American tax authority.

CRS

The Common Reporting Standard (CRS), developed by the OECD in 2014, calls for the automatic exchange of financial account and taxpayer information between all participating jurisdictions, including Luxembourg. A Grand Ducal decree is published every year and provides the list of reportable jurisdictions.

CRS demands FIs located in a country implicated in the CRS to identify non-resident clients and report them to their local tax administrations located in a country involved in the CRS. CRS is based on tax residence while FATCA is based on the broad concept of “Specified US Persons”, with certain persons being reportable for both FATCA and CRS purposes.

What's new in 2021?

The Luxembourg Law of 18 June 2020 has amended the initial Law of 18 December 2015 on the Common Reporting Standard and the Law of
24 July 2015 on FATCA. The amended law has introduced some key FATCA and CRS requirements regarding the controls which need to be documented, the principle of purpose limitation and the power of investigation of the Luxembourg tax authorities (ACD). The sanctions in case of non-compliance have also been reviewed.

A new obligation has also been introduced for entities that had previously nothing to report under the CRS regime. From reporting period 2020, Luxembourg reporting FIs must submit NIL reports to the Luxembourg tax authorities even when they have no reportable accounts (i.e. individual, active NFE, passive NFE). Henceforth, FIs located in countries listed as reportable jurisdictions will not only have to submit a report when they have reportable accounts, but also if they don’t. The same obligation already exists for FATCA.

Deloitte Solutions

Deloitte Solutions is the regulated subsidiary of Deloitte Tax & Consulting, supervised by the CSSF and benefiting from a Professionals of the Financial Sector (PFS) status. Deloitte Solutions is subject to strict IT security and data confidentiality standards.

The Deloitte Solutions’ team has developed a strong skillset on QI, FATCA, and CRS reporting regimes and is able to provide the highest quality deliverables to your reporting financial institution.

Deloitte Solutions can act as an intermediary with the tax authorities in Luxembourg and abroad through our local offices for specific cases that must to be managed on a case-by-case basis. Being part of Deloitte allows us to provide you with the relevant expertise together with direct contacts to the tax authorities both in Luxembourg and abroad, such as in the US when required, by leveraging our relationships with our local offices.