Regulation: Luxembourg’s fund sector faces a race against the clock, with the Grand Duchy’s government expected to strike a deal less than three months before strict new American tax rules take effect.
US regulations loomed large during the 25th spring conference organised by the Association of the Luxembourg Fund Industry, held this week in Kirchberg.
“Most of us are thinking about being ready the beginning of next year, but this year we’re already up against an important deadline,” Manfred Bauer, a head of product management at DWS Investment in Luxembourg, said during an Alfi panel discussion on Tuesday.
He was referring to FATCA, the tax-avoidance scheme that could, potentially, require every financial institution in the world to provide client data to the IRS, the American tax office, beginning in 2014.
However “we 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, Bauer noted.
Non-compliance could result in a 30% withholding tax being levied on client transactions.
Several larger countries--including France, Germany, Japan and the UK--have inked deals with the US government that allows banks and investment funds to comply with the regulations through their home country’s tax authority.
Luxembourg’s government aims to sign such an accord during the third quarter of this year, which “is right in the middle of the registration period, so ideally we would need to have some more information on how we should register” in advance of the deadline, commented panelist Nenad Ilic, senior tax specialist at ING Investment Management in Luxembourg.
Indeed, “on our wish list is that the issue should be solved as soon as possible, so that we get clarity on the issue,” said Claude Wirion, member of the executive board at Luxembourg’s insurance regulator, the Commissariat aux Assurances.
Small firms at risk
Despite the short timeframe, “the big players certainly will be ready on time,” said Ilic. “I’m not concerned about the largest managers. I see a risk at the level of certain smaller distributors. Our funds are distributed in smaller Asian-Pacific countries and smaller Eastern European countries, where FATCA awareness is quite limited. I certainly see a risk there that our distributors will not become ‘FATCA compliant’ and as a consequence, that we will have to withhold tax from them.”
Following the panel discussion, Sandrine Leclercq, an attorney with Baker & McKenzie in Luxembourg, told Delano that “I think nobody really, really, really [is ready for FATCA] except those who decided to kick out their US clients.”
“I think there is a good number of banks that have made that decision” she said on the side-lines of the conference. As for the others, “they are as prepared as they can [be] but as you know there are still a lot of issues that need to be clarified even though the final regulations have been released a few weeks ago.”