On 14 October 2014, a decisive step has been taken towards the adoption of a FATCA-like automatic exchange of information (“AEoI”) mechanism throughout the European Union (“EU”).
Exchange of information has been extensively discussed at both EU and international level (“OECD”) in the past three years.
At EU level, one of the milestones in this movement was the adoption of the Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation (“EUACD”). This directive is now fully transposed in Luxembourg. On 12 June 2013, the EU Commission proposed extending the AEoI between EU Member States to dividends, capital gains, all other forms of financial income and account balance. It is this project, nick-named “European FATCA” by reference to the US law of 18 March 2010, that has been amended to take into consideration recent developments occurred at OECD level.
Indeed, in parallel to the EU process, the OECD pushed forward its own initiative on AEoI and released on 13 February 2014 its global standard for automatic exchange of financial account information (the “Global Standard”)1. The Global Standard consists of two components, i.e. the Common Reporting Standard (“CRS”), which contains the reporting and due diligence rules to be imposed on financial institutions, and the Model Competent Authority Agreement (“CAA”), pursuant to which governments would agree to exchange the information reported.
To become binding, the CRS needs to be implemented via bilateral or multilateral agreements. Building on this principle, the Council of the EU (ECOFIN) reached political agreement on 14 October 2014 on a revised version of the EUACD. The revised text aims at bringing the revised EUACD closer to the CRS.
KPMG Luxembourg comments
Enlarged scope for AEoI within the EU
“Bank secrecy is dead” said Commissioner Semeta at the ECOFIN press conference on 14 October 2014. Within the EU, this statement is true. The agreement on the revised EUACD actually brings interest, dividends and other income, as well as account balances and sales proceeds from financial assets, within the scope of the AEoI.
This statement is however not true when it comes to relationship i) with non-EU countries (at least for countries that will not apply the CRS) and ii) between resident taxpayers of a given Member State of the EU and the local tax authorities (Luxembourg 10% withholding tax on interest payments to resident individuals should be unaffected).
Timeline and Early Adopters
In March, a group of 44 countries and jurisdictions (known as the “Early Adopters”) announced they would implement the CRS with the first exchange of information between them expected to take place in September 2017. Subsequently, on 6 May 2014, 47 countries signed a declaration in which they expressed their determination to implement the new global standard swiftly and called on all financial centers to do so without delay.
Whereas Luxembourg signed the declaration of 6 May 2014, the country did not range among the Early Adopters (i.e. the Grand-Duchy did not take any commitment in terms of timeline for implementing the CRS). Doing so, Luxembourg was the only EU Member States with Austria that was not part of the list of the Early Adopters of the CRS.
The decision of the ECOFIN of 14 October 2014 could change the situation.
The revised EUACD is based on a proposed text from the EU Commission issued in June 2013, with significant amendments to incorporate the CRS developments. An important difference from the original proposal is the date on which the new rules will come into effect. The original proposal was for the new rules to apply to reportable accounts for taxable periods as from 1 January 2014. Under the agreed proposal this date is understood to be 1 January 2016, with first exchanges of information taking place in 2017, except for Austria that would apply the new rules from 1 January 2017, with first exchanges of information taking place in 2018.
The decision of the Luxembourg Government to commit on the 2016 deadline (leaving Austria as the only EU Member States requesting one additional year to implement the revised EUACD) is thus an important event. Furthermore, the dramatic move made by Luxembourg when it comes to AEoI within the EU leaves the question open whether Luxembourg is joining the Early Adopters group of countries at the OECD level. A decisive meeting in this respect will take place end of October in Berlin at the occasion of the meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Impact on EU Savings Directive
The revision of the EUACD raises the question of the future of the other piece of EU legislation dealing with AEoI, i.e. the Directive 2003/48/EC of 3 June 2003 on the taxation of savings income (“EUSD”).
Two important reforms of the taxation of savings within the EU have been decided in 2014.
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