What is automatic exchange of information?

Automatic exchange of information in the field of taxation is a measure imposed by the European Union to improve tax transparency and cooperation between European tax administrations. In a way, it puts the final nail in the coffin of banking secrecy as practised in the Grand Duchy of Luxembourg over the years. Automatic exchange of information will be implemented in two phases.

1st January 2015: interest incomes

Since the 1st January 2015, date of entry into force in the Grand Duchy of Luxembourg of the European Directive on the taxation of savings, automatic exchange of information applies to interests paid by paying agents in Luxembourg to natural persons having their residence in another Member State of the European Union (outside Luxembourg). Interest incomes include bank account interests, savings interests, savings bonds, term deposit accounts, bonds, dividends and capital gains on some bond funds.

In concrete terms, since the 1st January 2015, financial institutions, including banks, have to store information regarding interest payments to their European clients. In March 2016, information about the year 2015, which includes client details and income data (amount and date of each interest payment, account number), will be effectively exchanged by the Luxembourg’s tax authorities with the tax residence country of the client. In 2015, there will be not yet any exchange because information can only indicate interests paid the year before.

Are not concerned for the moment by automatic exchange of information legal persons, Luxembourgish tax residents and tax residents in a third State (outside the European Union). 

1st January 2016: global exchange of information

A further step towards more tax transparency will be made from the 1st January 2016 with the European Directive on administrative cooperation in the field of taxation. The Directive applies not only to all natural persons residents of the European Union (outside Luxembourg) but also to some legal persons (including companies). For legal persons, automatic exchange of information can take two different forms depending on some criteria defined by the Directive. Either the exchange will only be made with the country of corporate headquarters (for industrial or commercial companies), or the exchange will be made with the country of corporate headquarters and with the residence country of economic beneficiaries (for private asset management companies).   

Automatic exchange of information will be larger too. Two types of information on the year 2016 will be exchanged from September 2017 by the Luxembourg’s tax administration: firstly details of all natural persons and, if necessary, of legal persons concerned (and possible economic beneficiaries), secondly data regarding all their assets, namely interests, dividends, bank account balances on the 31st December (or on the account expiration date) and sales of financial assets.   

What is important for you to remember? If you are a Luxembourgish tax resident, nothing changes for you and banking secrecy is preserved. If you are not, contact your banker for advice. He will be able to say what automatic exchange of information will change for you in the upcoming months and years.

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