CRS Reporting - regulatory updates

The Luxembourg tax authorities (LTA) are performing some data quality checks further to the transmission of the Common Reporting Standard (CRS) reports by the Financial Institutions (FI). They are notably investigating whether mandatory information that should be collected as part of the onboarding process for new accounts is correctly disclosed in the CRS reports.

The LTA has sent letters to some FIs which filed CRS reports with investors or clients’ accounts not documented with Tax Identification Number (TIN) and/or place of birth information. As this information should have been collected for any new investors or clients since 1 January 2016, there is a presumption that the absence of this information in the CRS report may result from a lack of sound onboarding processes.

As such, in the frame of the preparation of the 2021 CRS reporting, FIs (and especially investment entities) should:

• investigate whether their IT systems (or the ones of their service providers) capture all the required information; 

• make sure that proper remediation plans are carried out to reduce the number of accounts without TINs or place of birth; and 

• ensure that FATCA/CRS procedures as well as reconciliation between investors or clients’ self-certifications and AML/KYC documents are ready to be communicated to the LTA upon request. 

In addition, there have been some recent discussions with the LTA with respect to the Collective Investment Vehicle (CIV) status under CRS. The CIV status enables certain FIs to be exempt from reporting as a Non-Reporting Financial Institution. 

To be eligible to the CIV status, an entity has to be established in Luxembourg, regulated as a collective investment vehicle, and not held by or through reportable persons. 

There were no  clear-cut guidelines whether the regulation condition was met only in case of direct regulation by the vehicle, or whether this notion could be interpreted extensively. Therefore, some RAIFs and other Alternative Investment Funds applied for this CIV status arguing that they were supervised by a fully licensed AIFM itself regulated by the CSSF.

The tax authorities have recently clarified that the regulation condition should be met only in case of direct regulation. It is expected from the RAIFs which chose the CIV status to update their CRS classification as Reporting Financial Institutions and to file an annual CRS nil report as from this year as well as to file a retroactive nil report for the year 2020.