Finance: The Grand Duchy has formally agreed to participate in a system of “automatic exchange of information” with US tax authorities.
Luxembourg has officially agreed to share tax data with the US.
The Grand Duchy, while still negotiating the implementation of “FATCA” with Washington, plans to sign an accord “which will provide automatic exchange of information between the Luxembourg and American fiscal authorities on bank accounts held in Luxembourg by citizens and residents of the United States,” the Grand Duchy’s finance ministry said on Tuesday.
FATCA is the tax-avoidance scheme that requires nearly every financial institution in the world to provide client data to the IRS, the American tax office, beginning next year. Non-compliance could result in a 30% withholding tax being levied on client transactions.
However financial institutions “have to register with the IRS” in October in order to be placed on a “white list” of financial instructions that are “deemed compliant” with the rules, Manfred Bauer, a head of product management at DWS Investment in Luxembourg, noted during an Alfi panel discussion earlier this year.
“This decision will put Luxembourg’s relations with the US in line with the declaration of 10 April 2013 by which Luxembourg announced that it will introduce, on 1 January 2015 and within the scope of the 2003 EU Savings Directive, the automatic exchange of information within the European Union,” according to the Grand Duchy’s finance ministry statement.
Under Luxembourg’s current system, a withholding tax is charged on all interest income, the majority of which is then transmitted anonymously to authorities in the client’s country of residence.
“Luxembourg wishes to see the same conditions apply to all competing financial centres and to see the automatic exchange of information accepted as the international standard,” the ministry added.
On May 14 the Grand Duchy gave its mandate to the European Commission to negotiate automatic tax information exchange with Switzerland, Liechtenstein, Andorra, Monaco and San Marino”. Those countries presently use the withholding tax system similar to Luxembourg’s.
Following meetings last month between Luxembourg finance minister Luc Frieden (photo) and EU leaders in Dublin and Paris, the ministry said “it is essential that the same standards should be adopted by all financial centres and that the automatic exchange of information should become a global standard adopted at the G20 [group of the world’s largest economies] level or even better at a worldwide level”.