We hope that you enjoyed the summer, and welcome you to the fall edition of Keeping up with Tax for Banking and Capital Markets!
Since most of us are now back to work, our fall edition is picking up on a range of current hot topics and latest tax developments relevant to our industry that will catch our attention in the coming months.
Specifically, the articles cover the following areas:
- Important key takeaways from the results of the European Commission’s public consultation on a potential new EU system to avoid double taxation;
- The loophole preventing the The Foreign Account Tax Compliance Act (FATCA) reporting of a U.S. Person denounced by the U.S Senate;
- DAC6: Focus on the new features and clarifications of the FAQ issued by the Luxembourg Tax Authorities;
- New double tax treaty signed between Luxembourg and the UK.
Please feel free to get in touch with us or your regular PwC contacts if there is anything that you would like to discuss further. Please also let us know if there are any topics that you would like us to cover in upcoming editions.
Kind regards,
Murielle Filipucci & Roxane Haas
Important key takeaways from the results of the European Commission’s public consultation on a potential new EU system to avoid double taxation
On 1 April 2022, the European Commission published its public consultation on withholding tax procedures for non-resident investors. The purpose of the consultation was to collect feedback with the ultimate aim of introducing a common EU-wide system for withholding tax on payments in the future.
On 4 August 2022, the Commission shared the summary report of the consultation. In the report, the Commission expresses concerns about withholding tax refund procedures for cross-border payments. These procedures have proven to be time-consuming, resource-intensive and costly for both investors and tax administrations, due to the difficulties faced by the latter in properly assessing entitlement to reduced withholding tax rates and the lack of digitalised procedures.
Loophole preventing the FATCA reporting of a U.S. person denounced by the U.S. Senate
The report published by the U.S. Senate last August highlighted the existence of schemes to prevent FATCA reporting, also known as the "shell bank loophole". This report comes in the wake of the Robert Brockman affair, which revealed that the late American billionaire was at the head of a scheme involving interposed offshore entities qualifying as financial institutions. This scheme allowed him to not be reported by its Swiss banks under FATCA and thus hiding approximately $2.7 billion from the US tax authorities.
DAC6: Focus on the new clarifications of the Frequently Asked Questions issued by the Luxembourg Tax Authorities
The Directive 2018/822 ("DAC 6 Directive") has now been live for more than two years. As a reminder, the main objective of the DAC6 regulation is to strengthen tax transparency by way of automatic exchange of information between the EU Member States on potentially “aggressive tax planning” arrangements. The duty of identifying and reporting such arrangements lies on the concerned taxpayer and in some cases, on the intermediaries. The operational and technical aspects of this analysis and reporting have raised numerous questions on the market in light of the wording of the Hallmarks and of the main benefit test (“MBT”).
New double tax treaty signed between Luxembourg and the UK
On 7 June 2022, the UK and Luxembourg Governments signed a new Double Tax Treaty (“DTT”). The entry into force is subject to the completion of the ratification processes in both jurisdictions.
The new DTT introduces an exemption from withholding tax on dividend payments as well as the so-called “real estate rich” company clause. We have summarised the key amendments below.
