Luxembourg signs FATCA agreement

A key private equity domicile has negotiated a 'Model I' intergovernmental agreement with the US.

More key jurisdictions are finalizing tax information sharing agreements ahead of a July deadline for the Foreign Account Tax Compliance Act (or FATCA).

Luxembourg is the third sovereign to sign a FATCA intergovernmental agreement this month, Finland and Chile being the other two.

Luxembourg signed what’s known as a “Model I” agreement. The model has GPs report FATCA information to their local regulator who will in turn share that information with their US counterparts. In return, the US Internal Revenue Service will collect and share data on Luxembourg account holders in the US.

As part of the signing on Friday, Luxembourg tax authorities formed two working groups pulled from both the public and private sector to implement the automatic exchange of information under the agreement.

FATCA requires non-US financial firms to report the holdings of US clients or suffer withholding tax on payments travelling out of the US.

Thanks to its flexible legal and tax environment, Luxembourg is a major hub for private fund managers, many of whom use the country as a gateway into Europe in their fund structures. FATCA may in fact cover holding companies used by GPs to acquire target companies, according to legal sources interpreting the complicated US bill. 

If so, it would mean each individual holding company will need to report as its own foreign financial institutions (FFI) under the law.