On 19 January 2015, the Luxembourg Tax Authorities released an administrative circular on automatic exchange of information between European Union (EU) Member States in the context of the taxation of savings of individuals (the Circular).
With the adoption of the law of 25 November 2014, Luxembourg has abolished the withholding tax system it has been authorized in 2005 to offer to account holders falling within the scope of the EU Savings Directive as an alternative to the automatic exchange of information. As from 1 January 2015, information on interest payments received by individuals being resident in another EU Member State for tax purposes will be automatically exchanged by Luxembourg.
The Circular now aims at clarifying some aspects of the law of 25 November 2014.
Content of the Circular
The Circular confirms that the automatic exchange of information on interest income is not applicable to legal persons (“personnes morales”), to Luxembourg residents and to residents of a non-EU country.
As a result of the abolishment of the withholding tax system, some clarifications were needed when it comes to the definition of the notion of paying agent upon receipt of an interest payment (so-called “residual entities”). The Circular also aims at providing these clarifications.
The deadline for the first communication to the Luxembourg Tax Authorities will be 20 March 2016 with respect to information of 2015.
Similar to what is also foreseen by the draft FATCA circular recently issued by the Luxembourg Tax Authorities, in case of missing, late, incomplete or false reporting, the economic operator risks a maximum penalty of 0,5% of the amounts that should have been reported. (Read our FATCA e-alert 2015-03)
Relationship with future modified EU DAC
The revision on 9 December 2014 of the Directive 2011/16/EU on administrative cooperation in the field of taxation (EUDAC) necessarily raises the question on the future of the EU Savings Directive.
Given that there is a political agreement at EU level that the EU Savings Directive should be repealed once the EUDAC is applicable, it is anticipated that as from 2017 (for tax year 2016) exchange of information will only be performed under the EUDAC and no longer under the EU Savings Directive. (Read our Tax News 2014-27)
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 of the particular situation.