Luxembourg Tax Alert 2019-13
Luxembourg Tax Alert 2019-13
The Protocol amending the US-Luxembourg tax treaty is approved
On 17 July 2019, the US Senate ratified the Protocol [PDF | 0.1MB] amending the US-Luxembourg income tax treaty. This Protocol replaces the existing treaty’s exchange of information article with one that follows the approach of the US model income tax treaty and the Organization for Economic Cooperation and Development (OECD) Model Tax Convention on Income and Capital.
The Protocol, accompanied by an exchange of notes between both countries, was originally signed in 2009 and sent to the US Senate for ratification advice and consent in 2010. The Senate Foreign Relations Committee approved it in 2011, but approval by the full Senate was blocked until this year. The existing treaty was signed in 1996 and entered into force on 20 December 2000.
Impact on exchange of information under FATCA
The revisions to the exchange of information article are an added impetus to comply with the Foreign Account Tax Compliance Act (FATCA) filing requirements. In particular, the Protocol’s new exchange of information article is modeled on corresponding provisions in the US and OECD model income tax treaties. It provides for, “more robust exchange of information between tax authorities in the two countries to facilitate the administration of each country’s tax laws.” 
The Protocol introduces a provision whereby a country may not refuse to provide information solely because it is held by financial institutions, nominees, or persons acting in a nominee or fiduciary capacity. Therefore, a country cannot claim that its domestic bank secrecy laws or similar legislation override its duty to provide information under this treaty provision. The provision also requires disclosure of information concerning the beneficial ownership of interests in entities and assets such as bearer shares. 
In this respect, the Luxembourg FATCA Law of 24 July 2014 already provided Luxembourg Financial Institutions with a legal basis to exchange financial information with the US without breaching local bank secrecy laws. Although FATCA reporting should not be affected, the Protocol strengthens the legal basis for the current exchange.
The Protocol will enter into force once the US and Luxembourg have notified each other that their respective ratification procedures are completed. It will become effective for requests for information made on or after the date of entry into force for tax years on or after 1 January 2009.
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