Luxembourg, US To Conclude FATCA Agreement In 2013
Thursday, December 20, 2012
Luxembourg’s Finance Minister Luc Frieden has announced plans to
begin negotiations shortly on an inter-governmental agreement between Luxembourg
and the United States, implementing the Foreign Account Tax Compliance Act (FATCA).
The US FATCA legislation was enacted in March 2010 as part of efforts to strengthen
the US tax administration’s capacity to combat cross-border tax evasion
by US citizens with accounts held abroad.
FATCA aims to achieve this objective by requiring Foreign Financial Institutions
(FFIs), including banks, investment funds, insurance companies, foreign trusts
and foreign corporations, to enter into agreements with the US Internal Revenue
Service (IRS), signing contracts pursuant to which the FFIs are obliged to conform
to certain obligations.
Failure by an FFI to disclose information on financial accounts held by US
taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership
interest, would result in a requirement to withhold 30% tax on US-source income.
However, to assist compliance by FFIs, the US Treasury has published a model
inter-governmental agreement for implementing FATCA and announced the development
of a second model agreement. It is intended that these models should serve as
the basis for concluding bilateral agreements with interested jurisdictions.
Under this model agreement, it is intended that FFIs would pass the relevant
information to the authorities in the country in which they are based, which
would then be transmitted to the US via information exchange provisions contained
in double tax avoidance or tax information exchange agreements.
Highlighting the fact that the first round of bilateral talks took place on
November 19, to prepare for upcoming negotiations, the finance ministry revealed
that the negotiations are expected to conclude in the first half of 2013.
Concluding, the finance ministry underscored that the inter-governmental agreement
will serve to enable the country’s financial institutions to conform in
all legal certainty to the new US legislation and to guarantee the competitiveness
of the Luxembourg financial sector.