A press release from the Luxembourg government announced that the ratification procedures were completed in early September 2019, bringing the protocol into force. The new protocol replaces the current information exchange article with an article following the approach of the U.S. Model Income Tax Convention and the Organisation for Economic Co-operation and Development(OECD) income and capital tax model. The protocol comes into effect for enquiries submitted on or after the effective date for taxable years on or after January 1, 2009. The provisions of the protocol, which allow the exchange of information between Luxembourg and the United States of America, complement the Intergovernmental Agreement (IGA) on the Foreign Account Tax Compliance Act (FATCA), signed on 24 March 2014 and adopted by Luxembourg in a law of 24 July 2014. On 27 February 2014, Luxembourg and the United States agreed on the content of the Model 1 (IGA Model 1) agreement and on 28 March 2014, the IGA Model 1 was signed. FATCA requires foreign financial institutions (FFIs) to report information to the IRS on the financial accounts of U.S. taxpayers or foreign companies in which U.S. taxpayers hold a significant stake.
FFI are invited to either register directly with the IRS to comply with FATCA rules (and, if applicable, FFI agreements), or to comply with FATCA agreements (IGA), which are considered effective in their legal systems. Information on fatca rules and administrative guidelines for FATCA and information on taxpayer obligations can be found on the INTERNAL Revenue Service`s FATCA page. The IGA Global Summary provides a general summary of all countries with substance agreements or agreements that are published directly with updates to the Fatca Resource Center of the U.S. Treasury Department. As part of the signing of the FATCA intergovernmental agreement with Model 1 between Luxembourg and the United States on 28 March 2014, the Luxembourg tax administration set up two working groups bringing together different public and private sector actors to carry out the automatic exchange of information under this agreement. To implement FATCA, the IRS and the U.S. Treasury expect to rely on intergovernmental agreements (IGA) signed between the United States and abroad. To this end, the U.S.
Treasury has published two forms of IGA (model 1 or model 2). Model 1 of the IGA expressly provides that the report to the IRS is not carried out by every Luxembourg financial institution under FATCA, but only by the Luxembourg FI reports. In addition, this information will be indirect; That is, through the Luxembourg tax authorities, which collect the required information from the luxembourg declaration and then collaborate with the IRS to transmit the information according to the methods to be agreed between the Luxembourg tax authorities and the IRS. Therefore, the Luxembourg FI report should not establish a contractual relationship with the IRS, as would be the case under IGA Model 2, but only if it is considered Luxembourg Reporting FI. The U.S. Treasury has adopted two standard agreements for the implementation of FATCA. These agreements serve as the basis for negotiations between the United States and the country implementing fatca. The fundamental difference between Model 1 and Model 2 is that FFI provides information to their national tax authorities on the basis of Model 1, which then transmits this information to the IRS, whereas, under Model 2, it must be communicated directly to the IRS.