Luxembourg Tax News - Issue 2014-04 | KPMG | LU

Luxembourg Tax News - Issue 2014-04

Luxembourg Tax News - Issue 2014-04




KPMG in Luxembourg


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OECD FATCA PROJECT: whose turn is it?

On 13 February 2014, the OECD released its global standard for automatic exchange of financial account information (the “Global Standard”). The Global Standard developed by the OECD and G20 countries in close cooperation with the EU, is part of the project known as the “OECD FATCA”.

As the name "OECD FACTA" suggests, the Global Standard is based on the Model 1 intergovernmental agreement (“IGA”) to implement the U.S. tax and reporting provisions commonly known as FATCA. The Global standard has been endorsed by the G20 Finance Ministers and Central Bank Governors at their meeting of 22 February in Sydney, Australia.

The Global Standard provides a common global approach for jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. To that end, the Global Standard sets forth the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.



The Global Standard consists of two components:

  • 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.

As mentioned above, both the CAA and the CRS draw heavily on the U.S. Model 1 IGA. It is therefore not surprising to note that the scope of the CRS is largely the same as the U.S. Model 1 IGA across three key dimensions:

  • Financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income,) but also account balances and sales proceeds from financial assets.
  • Financial institutions that are required to report under the CRS include not only banks and custodians, but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
  • Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations).  The CRS includes the requirement to look through passive entities to report on the individuals that ultimately control these entities.

The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts and obtain accountholder identifying information that is required to be reported.


Legal basis

Before entering into a reciprocal agreement to exchange information automatically with another country, it is essential that the receiving country has the legal framework and administrative capacity and processes in place to ensure the confidentiality of the information received and that such information is only used for the purposes specified in the instrument.

According to the “OECD Information Brief”, the CRS will need to be implemented in the domestic law of an implementing jurisdiction, whereas the CAA can be executed within existing legal frameworks such as Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or the equivalent of Article 26 in a bilateral tax treaty.

The legal basis for automatic exchange of information (“AEOI”) foreseen by the CAA will therefore either be the Multilateral Convention on Mutual Administrative Assistance in tax matters, or alternatively a bilateral treaty. In either case the OECD’s Standard then envisages a bilateral Competent Authority Agreement providing for automatic exchange of information.

Very interesting to note is that the OECD document makes the point that the Global Standard is intended to be a minimum standard. As a result, countries can ask for more information and crucially the OECD FATCA is not intended to restrict other types of AEOI.


Next steps

Based on the information published by the OECD, it is now foreseen that the Global Standard will be further developed to include technical solutions to implement the actual information exchanges. These technical solutions, along with a commentary providing further interpretive detail regarding the CRS, will be prepared in advance of the September 2014 G20 Finance Minister meetings.

The expected commentary to the CRS shall ensure a consistent application and operation of the Global Standard. The technical solutions document will cover information technology matters (including schema and user guide) and standards on the secure transmission of the information.

As mentioned above, countries wishing to implement the OECD FATCA will need to change their domestic legislation to adopt the CRS and allow their financial institutions to introduce necessary changes to their IT systems and client on-boarding procedures. They will also need to put in place the necessary administrative procedures and systems to exchange information with other participating countries and to process the information they will be receiving from those countries under the Global Standard.

Although these new rules are intended to improve efficiency and reduce costs for financial institutions according to the OECD, whether these goals can be achieved remains uncertain. The answer to this question will very much depend on whether individual countries are consistent in the way they implement the rules and how these interact with other similar regimes such as FATCA and the EU Savings Directive.

Indeed, contrary to the above declared objective, the very fact that the Global Standard is expected to be a minimum standard raises the prospect that financial institutions might be required to report under multiple AEOI regimes simultaneously, thus significantly increasing cost and complexity.


For further information, please do not hesitate to contact us.






The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination


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