The final regulations, as amended and completed, form the basis for the implementation of FATCA by FOREIGN exchange FUNDS worldwide, with the exception of the implementation of an intergovernmental agreement (IGA) on FATCA between the United States and a specific partner jurisdiction, as is the case with Luxembourg. Luxembourg`s “FATCA Act”1 came into force on 1 August 2015. In particular, the FATCA Act implemented the Luxembourg-US Intergovernmental Agreement of 28 March 2014 (IGA). On the eve of the law`s entry into force, the Office of Income Tax issued two circulars on fatca – the first containing guidelines on the technical aspects of the exchange of information between Luxembourg and the United States2 and the second, which clarifies the context of the FATCA Act.3 This article analyses the impact of FATCA on the institutions covered. , in accordance with the provisions of the act itself and the relevant guidelines. So far, most U.S. agreements are Model 1 IgAs. Under Model 1 IGA, information relating to their national authorities is transferred from the foreign financial institution to the IRS, while Model 2 IGA provides for the direct transmission of information from the foreign financial institution to the IRS and involves the adoption, in national law, of voluminous and complex final regulations. In May 2013, Luxembourg announced that a Model 1 would be selected for the adoption of an IGA. The purpose of the Foreign Account Tax Compliance Act (FATCA) is to reduce tax evasion by U.S.
individuals with respect to the income of financial assets held directly (in an account) or indirectly (through a foreign entity) outside the United States, by encouraging “foreign financial institutions” (FFIs) to report U.S. account holders (and passive business owners) to the U.S. Internal Revenue Service (IRS). FATCA imposes a 30 per cent U.S. withholding tax on payments made by the United States to FFIs (including banks, brokers, deposits and investment funds) that do not comply with FATCA rules. Reports on Luxembourg companies should inform all persons subject to reporting in the United States that information is collected and can be reported to local tax authorities, who in turn exchange the data with the US tax authorities. The FI definition is very broad and includes not only banks, insurance companies and investment vehicles, but also certain holding, financing or securitization companies. FFIs are considered to be reporting FFIS (reporting FFIs) unless they are covered by an exception or are considered compliant (i.e. subject to a lesser or no reporting obligation). FFIs that fall into the “investment vehicle” category may meet the requirements of several exceptions and options deemed compliant, including the “sponsored” exception. This exception allows an FFI Reporting, qualified as a sponsorship unit under the FATCA Act, to register as such with the U.S. Internal Revenue Service and to register in addition one or more sponsored companies with the Luxembourg Office of Income Tax.
In this case, only the proponent must meet FATCA`s periodic reporting obligations; sponsored companies would not be required to report. Partners, PwC Tax Information Reporting S`rl, PwC Luxembourg For companies considered foreign financial institutions (`FIs`), FATCA has a significant impact on business processes, systems and strategies.