Agefi Luxembourg - avril 2025

Avril 2025 11 AGEFI Luxembourg Economie / Fiscalité By Pierre KIRSCH, Tax Partner, Authorised Manager of PwC Regulated Solutions S tarting on 1 January 2026, new impactful tax reporting obliga- tionswill affect inLuxembourg more than 25,000 existingReporting Fi- nancial Institutions (RFIs) as per the OECDCRS (CommonRepor- ting Standard) definition, following the entry into force of the transposition of the 8th version of the Directive onAdministra- tiveCooperation (DAC). This will not only affect new type of financial entities in Lux- embourg like e-money institutions or crypto-assets service providers (CASPs), but also the whole population of existing financial entities like banks,insurancecompaniesandthelargepopulation of funds which fall in the scope of CRS. Indeed, this newdirectivewill reinforceduediligence obligations ontheirclientsandinvestorsandincreasetheamount of information to be annually communicated. Anewreporting framework for crypto assets but not only... Crypto-assets are currently an investment product which is subject to no, or light, tax transparency obli- gations especially in a cross-border context. It could be considered as a loophole within the existing tax transparency framework set by the OECD with the introductionofCRSand implementedacross theEu- ropeanUnionwith the secondversionof theDAC in 2016. The decentralised nature of crypto assets has alsomadeitdifficultforEUcountries’taxadministra- tions to ensure tax compliance. To close that gap, al- mostsixyearslater,theOECDpublishedanewglobal tax transparency framework for reporting and ex- changing information related to crypto-assets (Crypto-Asset Reporting Framework or CARF). With the introduction of DAC8, which incorporates CARFintoEUlaws,CASPs (1) willbesubjecttoreport- ing obligations on crypto-assets transactions (includ- ingexchangesandtransfersofrelevantcrypto-assets) made by their clients. Although the Directive states that the administrative burden should beminimised for the industry so that it is able todevelop its full po- tential within the European Union, CASPs will have asignificantamountofadditionalworktodotocom- plywith these newobligations. While CARF is built extensively on CRS for client onboarding and on-going due diligence, it intro- duces a fundamental difference in terms of report- ing as daily transactions instead of annual positions will have to be reported. In that sense, reporting would be of a similar nature to regula- tions such as the European Market Infra- structure Regulation (EMIR). Dailytransactionvolumeswillbesubstantial not only for service providers but also for tax authorities which will handle and ex- changebetweenthemselvestheinformation received. Robust systems must be imple- mented at both ends of the reporting value chain in a tight schedule. While the readiness status of tax authorities will remain mostly unknown because not visible, new actors do not have any other choice to develop andmanage in- ternally or outsource those new processes to external serviceprovidersandthenex- ercise anoversight on them. e-money institutions are also entering in the scope ofDAC8 DAC8also incorporates the concept of e-money into the CRS framework by revising the definitions of “DepositoryInstitution”and“DepositoryAccount.” The e-money institutions (EMI) holding e-money, products, orCentral BankDigitalCurrencies for cus- tomer benefit are entering within the scope of Re- porting Financial Institutions under CRS. In the alternativefundindustry,whereitisbecomingmore difficult for certain actors to quickly open bank ac- counts, such e-money institutions are sometimes used to find a way to open accounts and transfer money. As those entities, are not yet in scope of the DAC 2 due diligence and reporting requirements, no documentation on their clients’ CRS status has beencollectedfromfundmanagersbytheEMIs(and often at the great surprise of fund managers corpo- ratedepartments...), hence creatinga loophole in the reporting requirements. DueDiligence process for CASPs and EMIwill be similar toCRS/DAC2 Whenonboardingclients,thedataanddocumentcol- lectionprocesswillbelikewhatisrequiredunderCRS (e.g., name, address, jurisdiction of tax residence, tax identificationnumber(TIN),informationonControl- ling Persons of entities, etc.). A self-certification form fromtheEMIandCASPclientsoruserswillbelegally required before opening the account as it is already the case under current CRS rules. Controlswill need to be put in place to ensure completeness, accuracy and reasonability of the information collected. New actors must prepare for the due diligence and reporting rules starting January2026. Thisunfamiliar process will need new systems, people, and proce- dures to manage their current client volumes. They must also contact existing clients or users to gather, verify, and recordmissing information. Based on our experience, almost 10 years after DAC2 entry into force, these due diligence obliga- tions, lying on current Reporting Financial Institu- tions, is still a day-to-day challenge in terms of internal controls, their documentation and the re- quired tax knowledge to be fully effective. Recent statistics tell us that for some (even large) financial institutions, 50% of self-certifications reviewed are either incorrect or incompletewhich leads in25%of the cases to under- or overreporting issues towards tax authorities. Thiswouldmean that between 25% and 50% of the documentation collected can be today consideredas not valid. This “validity” status of the documentation collected is one of the addi- tional pieces of information thatwill neednowtobe reported to tax authorities and that may have some immediate consequences for RFIs. Additional data to be reported under CRS leading tomore automatic controls fromtax authorities Until the implementation of DAC8, foreign tax au- thorities will still be struggling to use part of the data exchanged due to errors or incomplete data that they are receiving. With the additional data that will be required to be reported under DAC8, foreign tax authorities will now have much more means at their disposal to trigger exchange of infor- mation requests to local tax authorities of RFIs. This additional information to be reported under CRS for both existing RFIs and newly included en- tities consists of: whether (a) the account is a Pre- existing Account (2) or a New Account; (b) a valid self-certification has been obtained; (c) the account is a joint account as well as the number of the joint account holders; (d) the type of financial account; and (e) the role of theControllingPerson in relation to the Entity Account Holder. This does not come as a surprise for those who were already working on that subject in 2016.At that time, it was foreseen by the EU to assess in a short timeframe DAC2 ef- fectiveness and add those fields to the existing re- porting. Eventually it came only 10 years later... By incorporating these additional fields into the CRS reporting framework, tax authorities will be better equipped toverifywhether RFIs collected in- sufficient documentation or data from accoun- tholders. This will also enable them to refine their information requests during tax audits byprioritis- ing these cases. As a possible scenario, tax authorities can focus on the lack of documentation obtained for newly openedaccountsanddeterminethemselvesiftheva- lidity status reportedby theRFI iswrongbasedona simple automatic check performed on three new data points. When crossing the information on new accountswith somemandatory reportingfields like the Tax Identification Number (TIN) and/or the va- lidity status of self-certification, tax authorities will detectwhataretheRFIswhichhavesomedeficiency patterns in their CRS processes. This targeted ap- proach will enhance the effectiveness of regulatory compliance oversight by allowing tax authorities to addressspecificareasofconcernmoreefficientlyand possibly issuemore penalties automatically. Penalty regime And penalties level will certainly not decrease in the future... Contrary to what was initially dis- cussed at EU level, there will be no harmonisation of the penalty regime within the EU. The initial draft proposed a minimum penalty of EUR 50,000 for DAC2, DAC6, DAC7, and DAC8 reporting is- sues. Thefinal directive allowsmember states to en- force penalties independently. In Luxembourg, penalties can reachup toEUR250,000 for non-com- pliance in DAC2, DAC6, and DAC7, with a mini- mum of EUR 10,000, one of the highest in the EU. Further tax transparency amendments DAC8 also introduces an exchange of information related to advance cross-border tax rulings for high- net-worth individuals (i.e., those with transactions covered by the ruling exceeding EUR 1.5 million) that have been issued, modified, or renewed after 1 January 2026with the stated intention, “to reduce the risks of tax evasion, tax avoidance and tax fraud,” as the current provisions of DAC do not cover this type of income. DAC8 also includes provisions to adapt DAC6 to ensure that Member States give intermediaries the right to a waiver from filing information on a re- portable cross-border arrangement where the re- porting obligation would breach the legal professional privilegeunder the national lawof that Member State. Furthermore, DAC8 also enforces an increased availability of TINs for reporting and communica- tion tohelp tax authorities identify relevant taxpay- ers and correctly assess the related taxes. In conclusion, less than eight months away from DAC8implementation,RFIs(alreadyinscopeentities butalsoEMIsandCASPs)shouldstarttheanalysisof their legacy data, carefully review their operating model to ensure that any potential compliance gaps areidentifiedandcorrectedbeforetheentryintoforce of theDirective in January2026. For thenewactors in scopelikeCASPsandEMIs,establishingastronggov- ernance on those new due diligence and reporting processes is a particularly important step that needs to be thoughtfully addressed without delay. Under- estimating thiswill lead tomore systematic potential penalties fromtax authorities. 1) Whether they are regulated or not (the latter will be required to register in one single Member State for the purpose of complying with their reporting obligations) 2)Accounts opened before DAC2 entry into force date on 1st January 2016 DAC8 - an extension of existing tax transparency obligations that affects most of actors of the financial sector I n March 2025, the PwC Busi- ness Barometer fell to -7, down from -5 in February. The decline reflects an uncertain environment, worsened by a trade war triggered by the Trump administration. InLuxembourg, economic uncertainty is weighingonthegeneralhealthoftheeco- nomy. Indeed, despite not being signifi- cantly exposed to international trade of goods, the country is being impacted by indirecteffectsstemmingfromworsened global trade tensions. STATEC reports that only 3% of Luxembourg's exported goods are destined for the U.S., mainly metals and textile products. Nevertheless, the economycould feel the pain of uncertainty on a broader scale, considering its interconnections within the European supply chain. Data from the Luxembourg Central Bank show a decreaseinseveralconfidenceindicators. Theconsumerconfidenceindicatordecli- ned for the third consecutive month to - 13, down from-11.4 in February.Asimi- lar trend is seen in the industrial sector. However, there is good news from the financial sector, which was one of the main contributors to the 1.4% expansion in Luxembourg's real GDP in Q4 2024. Positivedevelopmentsarealsoemerging in the real estate sector. According to the latestBankLendingSurvey,financialins- titutions report an increase in mortgage applications. Notably, the intention to purchase residential properties has been steadily increasing since mid-2024, lea- ding to a 37% YoY growth in residential property lending during Q4 2024 – a trend confirmed in the first months of 2025. STATEC also reported positive newsregardinginflationandunemploy- ment. Inflation slippedslightly to1.3%in March, after a rebound 1.9% in January from the 1.0% recorded in December. Unemploymentsettledat5.9%.Thelatest inflation dynamics are likely to trigger a wage indexation inMay,which is expec- ted to be confirmed onApril 29th. TheEurozoneeconomyregisteredathird successive monthly increase in business activity in March, with the Composite PMI remaining in expansion territory at 50.9. Despite some easing of input cost pressures, conditions remain uncertain and heavily dependent on how Europe responds to the recent tariffs. Indeed, the expansionwasweaker than the long-run trend of 52.4, while new export orders declined, as did the positive sentiment among private sector companies. Nevertheless,asidefromrestrainedinfla- tionarypressures,employmentnumbers were positive across the EuroArea, with private sector workforce statistics rising for the first time since July 2024. On a country-specific basis, France remained at the bottomof the rankings in terms of economic activity, posting a seventh suc- cessive monthly contraction, influenced by a fragmented political situation recently worsened by Marine Le Pen’s convictionforembezzlement.Irelandand Spain were the best performers, with growth improving to 4- and 2-month highs, respectively. Germany saw its broadest business activity increase in 10 months, likely driven by indirect effects fromthedebt-financedEUR500bninfra- structure fund agreement. On a global scale, President Trump’s trade policies have engulfed the world economyanddrasticallyincreaseduncer- tainty. On April 2nd – proclaimed “Liberation Day” – the U.S. President massively escalated the trade war, announcing reciprocal tariffs of at least 10%onall countries. The followingweek wasmarkedbyextrememarketvolatility. MajorU.S.stockindicesfellintobearmar- ket territory, while gold prices surged to a record high of USD3,167 per ounce. Market panic intensified after China imposed retaliatory tariffs onU.S. goods, prompting the Trump administration to respondwithadditionaltariffsonChinese imports, bringing the total tariff rate to 145%asofApril10th.Followingtheworst week for U.S. stock markets since the COVID-19 pandemic, President Trump suspended the measures for 90 days for all countries –exceptChina– introducing alower,temporary10%tariffoncountries thatdidnotretaliate.AlthoughtheMarch inflation reading declined to 2.4% from 2.8% in February – an encouraging sign that the Fed’s measures are contributing to disinflation – the short-term outlook remains uncertain. Given the inflationary nature of tariffs, there is a risk that the disinflationary trend may stall in the coming months, or even reverse. Such a developmentwouldsignificantlycompli- catetheFed’seffortstomaintainpricesta- bilitymoving forward. The monthly PwC barometer, in collaboration with AGEFILuxembourg, isaneconomicconfidence indi- cator that is intended to be a simple and pragmatic tool aimed at capturing the economic atmosphere of the Grand Duchy each month. The indicator is based on a number of sentiment indices published monthly by Eurostat and Sentix, which are based on surveys (businesses, consumers or investors/ analysts). The indicators used are: consumer confidence (EA for euroareaandLUXforLuxembourg),industrialconfi- dence(EAandLUX),constructionconfidence(EAand LUX),financialconfidence(EA),retailconfidence(EA), services confidence (EA) and the Sentix Index (EA). The evolution of the barometer over the past four years is displayed on the graph below. PwCMarketResearchCentre, IHSMarkit,Sentix,STATEC The monthly PwC Barometer