Application in Luxembourg of the Common Reporting Standard (CRS) · 2020-05-05 · Application in Luxembourg of the Common Reporting Standard (CRS) Legal Framework Offshore tax evasion

Application in Luxembourg of the Common Reporting Standard (CRS)24 November 2016

Jean-Michel Hamelle

Partner

Tax & Accounting

Catherine Normand

Authorised Director

Financial Services

©2016 Grant Thornton ABAX Consulting. All rights reserved 2

Agenda

1. Introduction• Legal Framework • The OECD Common Reporting Standard (CRS)o Objectiveso Componentso The Standard

• Luxembourg Law of 18 December 2015o Timelineo Main conceptso Content

2. Entities and individuals under the Law

3. Main obligations under the Law• Due diligence requirementso Pre-existing individual accountso New individual accountso Pre-existing entity accounts

o New entity accounts• Reportingo Reportable Accountso Reportable Personso Deadlines

4.Data protection5- Penalties

6. FATCA vs CRS

USEFUL LINKS

Questions & Answers


Application in Luxembourg of the Common Reporting Standard (CRS)

Legal FrameworkOffshore tax evasion is a Worldwide issue Crackdown on tax evasion

Already in May 2014, 47 countries tentatively agreed on a “common reporting standard” in order to share information, upon request, to control tax evasion

As of October 2016, 101 jurisdictions signed an agreement to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters specifying the details on what information would be exchanged and when

1. Introduction



U.S. Qualified Intermediary (QI)

regime

Chapter 3 and 4, and Chapter 61

and Section 3406 of the Internal Revenue Code

Identification of US persons investing in US securities through Foreign Intermediaries

Ensure right application of double taxation treaties concluded by US and of the US withholding tax to be applied to Non US Persons

Reporting

Effective 2001Revised in 2014 and 2016

EU Savings Directive(EUSD)

European Legislation2003/48/CE & bilateral

agreement between Switzerland and the EU

2005 Luxembourg Law

Declaration by the Paying Agents of the interest paid to taxpayers with a tax residence in another Member State,

or Withholding

Effective 2005

Foreign Account Tax Compliance Act

(FATCA)

US 2010 Legislation part of the bill called Hiring Incentives to Restore Employment (HIRE)

Model 1 IGA between Luxembourg and US

(March 2014)

Identification of US accounts

Implementation of processes and procedures

Yearly reporting of US accounts and financial data relating to these accounts

Withholding ? Not under Lux IGA

Effective 2015

OECD Common Reporting Standard

(CRS)

International legal framework based on the OECD Multilateral

Convention on Mutual Administrative Assistance in Tax

Mattersapproved by the OECD in July 2014EU Directive 2014/107/EU (DAC 2)

on Automatic Exchange of Information (AEOI) modifying EU

Directive 2011/16/EULuxembourg Law of 18/12/2015

Purpose: prevent tax evasion by reporting with respect to reportable accounts all types of investment income as well as account balances and sales proceeds from financial assets

Entry into force: January 1st 2016

repeal and adoption

Legal Framework

Cooperation in Tax Matters

European Legislation 2011/16/EU on

administrative

cooperation in the field of

taxation (DAC)Luxembourg Law of

29/03/2013

Exchange of information on request

Mandatory automatic

exchange of

information

Spontaneous exchange of information

Entry into force: January 1st

2013



The OECD Common Reporting Standard (CRS)

A reciprocal Automatic Exchange Of Information (AEOI)

Jurisdiction A Tax Administration

Jurisdiction B Tax Administration

IT Platform

IT Platform

Jurisdiction A Financial Institutions

Jurisdiction B Financial Institutions

Information reporting of residents for tax of Jurisdiction B with domestic reporting requirements of Jurisdiction A

Information reporting of residents for tax of Jurisdiction A with domestic reporting requirements of Jurisdiction B

Information exchange in accordance with the underlying legal instrument

and the Competent Authority Agreement (CAA) between

Jurisdictions A and B

Account holder X

Account holder Y

Account holder Z

Account holder D

Account holder E

Account holder F

Jurisdiction A Jurisdiction B



CRS - Objectives

Standardized model, developed by the OECD in close co-operation with the EU, which objective is to approach the maximum number of residence jurisdictions and financial institutions by:

o Process simplificationo Higher effectivenesso Minimization of costs and administrative burdens for all stakeholders

Jurisdictions obtain financial information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis


CRS – Components

Components:

Common Reporting and Due Diligence Standard (CRS)

The Model Competent Authority Agreement (CAA)

The OECD Commentaries that provides additional guidance on local implementation of the CAA and CRS

Guidance on technical solutions, including an XML schema

☛ The Standard need to be translated into domestic law whereas the CAA can be executed within legal frameworks (Art. 6 of the MCMAA (Multilateral Convention on Mutual Administrative Assistance in tax

Matters) or Art. 26 in a bilateral tax treaty. ☛ EU translated the Standard through DAC2 which was transposed in Luxembourg Law on 18

December 2015 entering into force on 1 January 2016.




The Standard

Overview of the Common Reporting Standard

Reporting Financial Institutions

Financial Accounts

Reportable Accounts

Due Diligence rules

Report the relevant information

Chapter 1

Chapter 2

Chapter 3

Chapter 5

Chapter 4

Review their

To identify

By applying

And then



➡ Entry into Force : 1 January 2016➡ First reporting by 30 June 2017 on fiscal year 2016

As of 1 January 2016: New Due Diligence requirements for all New Accounts

31 December 2016: Deadline for the review of Pre-existing High Value Individuals accounts that includes:

Electronic search

Paper search

Relationship manager inquiry

30 June 2017: Deadline for FI reporting to ACD

30 September 2017: Exchange of information between the tax administrations

31 December 2017:

• Deadline for the review of Pre-existing Low Value individuals accounts

• Deadline for the review of Pre-existing entities accounts which aggregated balance or value in EUR was above USD 250.000 as of 31 December 2015

Luxembourg Law of 18 December 2015 - Timeline



The Tax Administration will communicate the information relating to Reportable Accounts (Comptedéclarable) as of 1 January 2016.

• Reportable Account: Account maintained with a Luxembourg Reporting FI and held by Reportable Person(s) or by a Passive NFE with one or more Controlling Person(s) that are Reportable Person(s)

• Reportable Person (Personne devant faire l’objet d’une déclaration): Person having its residence for tax purposes in a Reportable Jurisdiction (certain exceptions for entities)

Luxembourg Law of 18 December 2015 – Main concepts



ANNEXE I Section I: Information to be reported by Reporting FIs to the Luxembourg Tax Authorities (ACD) for each reportable account:

- Individuals or Controlling Persons name, address, residence(s), TIN(s) and date and place of birth - Entities name, address, TIN(s) and date and place of incorporation- Controlling Persons name, address, and TIN(s) of the Entity and the name, address, TIN(s) and date and place of

birth of each Reportable Person;- Account number;- Name and identifying number (if any) of the Reporting Financial Institution;- Account balance or value as of the end of the relevant calendar year or other appropriate reporting period (if the

account was closed during the year or period, the closure of the account)- Custodial accounts: total gross amount of interests, dividends other income generated with respect with the

assets held in the account and total gross proceeds from the sale of redemption of Financial assets paid or credited to the account;

- Depository accounts: total gross amount of interest paid or credited to the account;- Other accounts: total gross amount paid or credited to the Account Holder including the aggregate amount of

any redemption payments.

Luxembourg Law of 18 December 2015 - Content



2.Entities and individuals under AEOI Luxembourg Law (in compliance with CRS)

Legal entity classification:

- Financial Institution (FI)- Non Financial Entity (NFE)

Passive NFE means :

any NFE that is not an Active NFE;

or

an Investment Entity that is not a Participating Jurisdiction Financial Institution.

The Commentary provides that an Entity’s status as a Financial Institution or Non financial entity (NFE) should be resolved under the laws of the Participating Jurisdiction in which the Entity is resident.


Due diligence requirements


Pre-Existing Individual Accounts

New Individual accounts

Pre-Existing Entity Accounts

New Entity Accounts

Annex I of DAC2 and Luxembourg LawChapter 4 CRS Implementation

Accounts opened from the 1st Jan 2016

Accounts opened until the 31st Dec 2015

Accounts opened until the 31st Dec 2015

Accounts opened from the 1st Jan 2016

3. Main obligations under AEOI Luxembourg Law


3. Main obligations under AEOI Luxembourg LawDue diligence – Pre-Existing Individual Accounts

Application in Luxembourg of CRS

Lower value accounts

Residence Address

YES

Documentary Evidence

The reporting FI may treat the individual Account Holder as being resident for tax purposes of the

jurisdiction in which the address is located

NO

ELECTRONIC SEARCH1. Identification of the Account Holder as a resident of a

Reportable Jurisdiction;2. Current mailing or residence address(including a post

office box) in a reportable jurisdiction;3. One or more telephone numbers in a Reportable

Jurisdiction and no telephone number in the jurisdiction of the Reporting Financial Institution;

4. Standing instructions (other than with respect to a Depository Account) to transfer funds to an account maintained in a Reportable Jurisdiction;

5. Currently effective PoA or signatory authority granted to a person with an address in a Reportable Jurisdiction;

6. A “hold mail” instruction or “in-care-of” address in a Reportable Jurisdiction if the Reporting FI does not have any other address on file for the account holder

REVIEW

INDICIA

YES

NO

No further action is required until: Change of circumstances or; The account becomes a High Value Account

The Reporting FI must treat the Account holder as a resident for tax purposes of each Reportable Jurisdiction for which the indicia is identified

Exceptions


3. Main obligations under AEOI Luxembourg LawDue diligence - Individual High Value Accounts

Application in Luxembourg of CRS

Electronic searchElectronic databases contains all information to determine tax residence

YESNo further

action NO

Paper Record Search

The Reporting FI must review the current customer master file. Documentation for the last 5 years for indicia identification: The most recent Documentary evidence The most recent account opening contract or documentation The most recent documentation obtained in connection to AML/KYC procedures Any PoA or signature authority forms currently in effect Any standing instructions (other than with respect to a Depository account) to transfer funds

Currently on file: The account holder’s resident status Account holder’s residence and mailing

address Account holder’s telephone number(s)

Standing payment instructions other than Depository accounts

“in-care-of” address or “hold mail” PoA or signatory authority

Relationship Manager Inquiry


3. Main obligations under AEOI Luxembourg LawDue diligence – New Individual accounts


Upon account opening: the Reporting financial institution must :

obtain a Self-Certification, which may be part of the account opening documentation and must contain the TIN(s) and the date and place of birth

confirm the reasonableness of such self-certification based on the information collected in relation to the AML / KYC process

in case of change of circumstances obtain a valid Self-Certification


3. Main obligations under AEOI Luxembourg LawDue diligence – Pre-Existing Entity accounts


A. Accounts not to be reviewed, identified or reported: Pre-existing accounts under USD 250.000 are not subject to review

B. Accounts subject to review: account balance or value > USD 250.000 as of 31 December 2015 or 31 December of any subsequent year

C. Reportable Account:

If the account is held by one or more Entities that are Reportable Persons or by Passive NFEs with one or more Controlling Persons who are Reportable Persons


3. Main obligations under AEOI Luxembourg LawDue diligence – Pre-Existing Entity accounts


B. Accounts subject to review: account balance > USD 250.000 Determination whether the Entity is a Reportable Person:a) Review the information to determine the residence of the Account Holder (place of incorporation or organisation, or address), b) Unless self-certification confirming that the Entity is not resident for tax purposes of the concerned Foreign Jurisdiction

Determine whether the Entity is a Passive NFEDetermination of the Controlling Persons

Relying on AML/KYC documentationThe Reporting FI may rely on information collected and maintained pursuant to AML/KYC procedures

Determination of the residence of the Controlling Persons: The Reporting FI may rely on :

- Rely on AML / KYC documentation if Account aggregated balance or value account < USD 1.000.000otherwise

- Self-certification


3. Main obligations under AEOI Luxembourg LawDue diligence – New Entity accounts


The Reporting Financial Institution

must establish whether the Entity is a Reportable Person

For Passive NFEs the Reporting Financial

Institution must establish whether the

Entity is controlled by a Reportable Person

To determine if the Controlling Persons are Reportable Persons, the Reporting FI may rely on a Self-Certification

Validity of the Self-Certification: It must be signed by the

Controlling Person It must be dated It must include the name,

residence address, jurisdiction tax residence, TIN and date of birth

Step 1 Step 2

The Reporting Financial Institution has to verify that the account holder is not an excluded Entity (e.g. Government Entities)

Self-Certification has to be obtained by the Reporting FI to determine :• the residence of the entity for

tax purposes, • its classification

NO

To identify the Controlling Persons the Reporting FI may rely on information collected and maintained pursuant to AML/KYC procedures



3. Main obligations under AEOI Luxembourg LawREPORTING:

Reportable Accounts

Reporting Financial Institutions are required to review the Financial Accounts they maintain to identify whether any of them need to be reported to the tax authority

General rule “A Financial Account is an account maintained by a Financial Institution”



Reportable persons

IndividualsIndividuals tax resident in a Reportable jurisdiction

Entities• Investment entities from Non-participating

jurisdictions with Controlling Persons tax resident in a Reportable jurisdiction

• Active NFEs from a Reportable jurisdictions, other than those which are regularly traded on an established securities market or affiliated thereto, governmental entities, or international organizations

• Passive NFEs with Controlling Persons resident in a Reportable jurisdictions

3. Main obligations under AEOI Luxembourg LawREPORTING:



3. Main obligations under AEOI Luxembourg LawREPORTING: Deadlines

Luxembourg Reporting FI to ACD: by 30 June 2017 and subsequent year

ACD to Tax Authorities of Reportable Jurisdictions by: 30 September 2017 and subsequent year


Reporting Financial Institutions shall be considered to be data controllers.

It means that Reporting Financial Institutions shall:• notify the CNPD• informs each individual Reportable Person concerned that:

1. The reporting FI is Data Controller for personal data concerning this person2. The data are collected for the purpose of the ‘AEOI’ Law3. The data may be transferred to the ACD and to the Tax Authority of a Reportable Jurisdiction4. Response to questions is mandatory5. The consequences of lack of response6. The individual have the right to access the data and ask for rectification (upon documentary evidence)7. Information processed in accordance with the Law shall be retained for no longer than necessary to

achieve the purposes of the Law

The Individual Reportable Persons must be informed in sufficient time for them to exercise their data protection rights and, in any case, before the Reporting Financial Institution concerned reports the information referred to in the Law to the Luxembourg Tax Authorities.


4. Data protection


Common Reporting Standard (CRS)

5. Penalties

The local tax authorities are responsible for the control of the good implementation of the due diligence rules and reporting procedures by the Reporting Financial Institutions

In case of non compliance, the law provides the below penalties:

- Failure to comply with the due diligence rules or failure to implement reporting procedures the Reporting FI may incur an administrative fine up to EUR 250.000

- Late, incomplete, false or missing reporting the Reporting FI may incur an administrative fine of up to 0,5% of the amounts that should have been reported with a minimum of EUR 1.500



6. FATCA versus CRS

FATCA CRS Registration with the IRS – GIIN No registration

Reporting: transition period over 3 years No transition period

Sponsored entity /Sponsoring concept No sponsoring

Due diligence: de minimis threshold for individuals No de minimis threshold for individuals

Reportable persons: US Persons only Residents of other Reportable Jurisdictions

Withholding in certain circumstances No withholding


Common Reporting Standard (CRS)

6. FATCA versus CRS (cont’d)

FATCA – IGA Model I CRS US Citizenship Tax residence

Bilateral context Multilateral context

Minimis limits USD 50.000 / USD 250.000 No de minimis rules (exception: optional exclusion from due diligence procedures for Entity pre-existing accounts of balance < USD 250.000)

No residence address test option Residence address test option

AML / KYC documentation and Forms W8 and W9 AML / KYC documentation and Self-Certifications

Financial Institutions and Financial Accounts that present low risk for tax evasion are exempted (i.e. Local Client Base, Local Banks … )

The FATCA exemption is removed including local entities excluded under FATCA. Flexibility to Jurisdictions to define specific exemption for low risk entities



Useful links

o Norme commune de déclaration (NCD) – Common Reporting Standard (CRS) http://www.impotsdirects.public.lu/echanges_electroniques/CRS_NCD/index.html?highlight=NCD

o L'Association des Banques et Banquiers (ABBL)http://www.abbl.lu/fr/professionnels/affaires-juridiques-fiscalite/automatic-exchange-of-information

o Guidelines Association of the Luxembourg Fund Industry http://www.alfi.lu/legal-technical/alfi-guidelines-and-recommendations

o Guidelines OECDhttps://www.oecd.org/tax/automatic-exchange/


Any questions?

Thank you

29

Jean-Michel Hamelle

[email protected]

+352 45 38 78 - 990

Grant Thornton Weber & Bontemps Tax and

Accounting S.A.20 rue de Bitbourg

L-1273 Luxembourg - Hamm

Luxembourg

Contacts

Catherine Normand

Authorised Director

[email protected]

+352 45 38 78 - 748

Grant Thornton ABAX Investment Services S.A.20 rue de Bitbourg


Luxembourg

Lionel Gendarme

Partner

[email protected]

+352 45 38 78 – 990

Miriam Mora

Consultant

[email protected]

+352 45 38 78 – 1

Grant Thornton ABAX Consulting S.A.20 rue de Bitbourg


Luxembourg

mailto:[email protected]



Documents

Application in Luxembourg of the Common Reporting Standard (CRS) · 2020-05-05 · Application in Luxembourg of the Common Reporting Standard (CRS) Legal Framework Offshore tax evasion