FATCA/CRS reporting : Updated FATCA schema is expected for April 2022

On 14 March 2022, the Luxembourg tax authorities announced some changes in the way Passive Non-Financial Foreign Entities (“NFFEs”)  with US Controlling Persons are reported under FATCA.

Since last year and the filing of the 2020 FATCA reports, the Internal Revenue Service (“IRS”) notified the Luxembourg tax authorities for each report containing missing or invalid US Tax Identification Numbers (“TINs”).

In practice, many of those notifications were in relation with clients or investors qualifying as Passive NFFEs with US Controlling Persons that may not have a US TIN for valid reasons (mainly because they are not US Persons themselves). 

In order to avoid receiving future error messages from the IRS, the Luxembourg tax authorities communicated their intent to update the Luxembourg FATCA reporting requirements as from April 2022 whereby those entities could be reported with their foreign TIN rather than with a US TIN or with “NA” in the absence of a foreign TIN. 

It has also been specified that, if a Luxembourg Reporting Financial Institution has already submitted the report for 2020 and received an error notification for the missing US TIN, this Financial Institution does not need to do an amended report to correct this specific error.

Last, it should be noted that a distinction should be made between the above situation and the one whereby Reporting Financial Institutions whose FATCA reports have indeed included US persons or entities whose US TIN was missing or incorrect. In those cases, Financial Institutions are encouraged to make an additional attempt to obtain such missing US TINs and to document their effort to obtain them.

According to the legal provisions under Luxembourg law, the deadline to file FATCA and CRS reports with respect to the calendar year 2021 is set as 30 June 2022.

In order to properly identify the reportable Account Holders, Luxembourg Financial Institutions should ensure that procedures, policies, systems and controls are in place and updated accordingly. In that respect, the Grand Ducal Decree dated 13 December 2021 adds Kenya and Maldives to the list of jurisdictions considered as Reportable Jurisdictions under CRS for the calendar year 2021. 

As a reminder, a new Luxembourg law has been voted on 18 June 2020, effective since 1 January 2021, which imposes new obligations on Luxembourg Financial Institutions regarding the implementation of a sound compliance governance around FATCA and CRS. We are currently witnessing more and more controls by the Luxembourg tax authorities on the data quality of the FATCA and CRS reports they receive. In this respect, the Luxembourg tax authorities are sending out information requests to Luxembourg institutions, asking for their FATCA and CRS classification and the rationale behind, written policies and procedures and a description of concrete actions that have been taken to comply with their due diligence and reporting obligations. Failure to respond to these information requests within the given deadline results in the issuance of penalties. The minimum penalty of 10,000 Euros has already been issued several times during the last weeks.

For more information, please refer to our previous articles on the FATCA and CRS governance and controls mechanisms.