Financial Crime World

Luxembourg Tightens Financial Record Keeping Requirements for Reporting Institutions

New Obligations and Penalties for Reporting Financial Institutions (RFIs)

Luxembourg’s direct tax authorities have clarified the application of recent amendments to the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) legislations. These changes will significantly impact RFIs in the country, introducing new obligations and penalties for non-compliance.

Key Changes

  • Starting January 1, 2021, RFIs must file a nil report to the Administration des Contributions Directes (ACD) if they do not have any CRS-reportable accounts.
  • Exempt collective investment vehicles for CRS purposes are exempt from this requirement.
  • Certain entities, such as Luxembourg Investment Advisors and Investment Managers, which benefit from a non-reporting status under FATCA but not under CRS will be required to file a nil report for CRS purposes.

Compliance Obligations

RFIs must:

  • Not engage in practices designed to circumvent FATCA or CRS reporting
  • Keep records and evidence of actions taken to comply with due diligence and reporting obligations for 10 years
  • Establish policies, controls, procedures, and IT systems to ensure compliance with FATCA and CRS requirements

Penalties for Non-Compliance

Failure to meet these obligations will result in significant penalties:

  • A lump sum fine of EUR 10,000 for absence or late reporting
  • A penalty of up to EUR 250,000 if an audit reveals any breach of their FATCA or CRS obligations

Enforcement and Investigation

The new obligations and penalties will be enforced by the ACD, which will have access to records and evidence used by RFIs to demonstrate compliance with their obligations. The powers of investigation by the ACD will expire 10 years after the end of the calendar year in which the RFI is required to report information.

Purpose of the Changes

The changes are designed to ensure that RFIs maintain accurate financial records and adhere to strict reporting requirements, thereby preventing tax evasion and ensuring transparency in international financial transactions.