FATCA’s second year declaration: less than a month for filing with Luxembourg tax authorities!

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guest article by Patrice Fritsch, Christian Daws and Dan Zandona

FATCA’s second year declaration: less than a month for filing with Luxembourg tax authorities!


Since 2014, FATCA has introduced a complex framework in terms of account reviews, collection of additional client information, complex classification of entities and private equity organizations, monitoring of compliance and FATCA reporting in Luxembourg.

FATCA’s second reporting filing deadline is fast approaching. By 30 June 2016, reporting financial institutions in Luxembourg will have to submit their FATCA declaration regarding US reportable accounts and data for the fiscal year 2015 to the Administration des Contributions Directes (ACD). Therefore, many reporting financial institutions are in the process of resuming a cycle of reportable data search and collection, preparing their data and reporting forms, testing their data and files, testing their technical infrastructure and submitting to the local authorities.

On 18 February 2016, the ACD published the amended Circular ECHA n°3 that includes technical specifications in line with the evolving and more complex requirements for FATCA reporting. The following items are not exhaustive but should be highlighted.

Regarding the data to be reported, the new format of the declaration includes new challenges in comparison to the previous period. Whereas the main financial data reported for fiscal year 2014 was the account balance or value, this year, the FATCA reports will include additional information with respect to amounts paid or credited during the calendar year to the reportable account holder. For example, custodial institutions will have to report the total amount of dividends, the total amount of interest and the total amount of other income paid or credited to each reportable account. Investment entities,  often the case of Private Equity entities classified as reporting financial institutions, will have to report the aggregate gross amount paid or credited to each reportable account, including (but not necessarily limited to) dividends, interest and redemption proceeds.  The FATCA report can no longer state that a reportable account has an account balance that is equal to zero (0.00). Other approaches may exist to nevertheless allow the reporting of such accounts that do actually have an account balance equal to zero or negative.

As in the previous year and as defined in the local tax authority circular, all reporting financial institutions in Luxembourg are required to submit a report to the authorities, even if no reportable accounts are maintained. In such case, a nil report must be filed following the same process as for a FATCA report containing US reportable accounts.  The reports need to be filed through one of the two secured communication channels defined in the Luxembourg tax authority circular. Additionally, any FATCA report filing should be encrypted with a specific provider and technology.

If a reporting Luxembourg financial institution fails to comply with the due diligence procedures or fails to put in place the mechanisms to report information as required, the financial institution may be subject to a fine of up to EUR 250,000. If a reporting financial institution fails to report, provides incomplete or incorrect reports or reports late, the financial institution may be subject to a fine of 0.5% of the amounts that should have been reported and not less than EUR 1500.

While some entities may still struggle to file the FATCA report of fiscal year 2014, most entities are currently performing the reporting of the fiscal year 2015.  Many reporting financial institutions are also actively preparing the processes for reporting for the fiscal year 2016, which will further evolve for FATCA and, significantly, will include an additional declaration to comply with the Common Reporting Standard (CRS).

In order to significantly reduce the administrative and technical burden for reporting financial institutions, the law and tax authority circulars allow delegation of reporting tasks to third party service providers. The third party service provider acts thereby as a technical depositor of data while the reporting financial institution remains as the declarer. This service provider may also provide services such as assistance in becoming compliant with the legislation and regulations, FATCA report generation (under xml format), report encryption and transmission to the local authorities. Such service providers include EY Luxembourg, which has developed a reporting solution that is compliant with local requirements and allows scaling and streamlining of the process throughout for small and large entities and financial organizations.

In order to remain or become compliant with both FATCA and CRS requirements, reporting financial institutions, including investment funds and private equity organizations, must, by the end of June 2016, perform the FATCA annual reporting with respect to 2015 and finalize due diligence of pre-existing accounts for FATCA purposes; they should also begin or continue due diligence of pre-existing accounts in the context of CRS and consider whether to select a third party service provider in order to be supported in the execution of the tasks required, receive hotline support or benefit from a reporting compliance managed service.

Patrice Fritsch, Directeur associé, EY Luxembourg

Christian Daws, Executive Director, EY Luxembourg

Dan Zandona, Manager, EY Luxembourg