Business
Financial Regulation
FATCA IS COMING New US financial reporting rules are likely to touch every Luxembourg bank and investment fund. With almost two years to go, why are tensions running so high? Text: Aaron Grunwald — Photos: David Laurent/Wide
New US regulations could potentially impact every financial institution around the world, including all those in the Grand Duchy. With less than two years before the rules take effect, tension within the financial community is mounting. One reason: the stakes are high. Non-compliant foreign banks and investment funds will face an automatic 30% withholding tax on all US revenue, applied across the board to all their own and all their client accounts. The Foreign Accounts Tax Compliance Act (FATCA) passed the United States Congress in March 2010. A US Treasury Department spokesperson in Washington told Delano that “FATCA is intended to assure the vast majority of Americans that fulfill their taxpaying responsibilities that others are not taking advantage of offshore accounts to evade those responsibilities.” The legislation creates a new requirement for any financial institution that deals with any US citizen, in any country in the world, to report account bal-
date Line December 2010 & January 2011
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ances and total transaction values to the Internal Revenue Service. This is a notable shift from the 10-year-old Qualified Intermediary (QI) system, which required internationally-based institutions to report on any US source income, such as trades in US securities, says Frederic Batardy, tax advisor at KBL European Private Bankers and chairman of the QI working group at the European Banking Federation. That means there could be “no link between US territory” and some of the reported income, says Rüdiger Jung, head of legal and tax and member of the executive committee at the Luxembourg Bankers’ Association. “This is something which some people put into question, because this touches on the sovereignty of the state in which the financial institution is located.” Regulations Still Unclear In August 2010, the IRS published its first guidance for foreign financial institutions, a circular called Notice 2010-60. Jung says the document is too
LABOUR COSTS UP Eurostat said hourly dec labour costs in the Eurozone rose 0.8% during the first nine months of 2010, the lowest increase since 2000. In Luxembourg, hourly labour costs in the third quarter of 2010 rose 2.8% compared to same period last year.
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unclear and “raises more questions than it gives answers.” This creates a problem from a technology perspective, explains Batardy, since IT departments normally need at least two years lead time between implementation and the moment regulations are 100 percent finalized. He says some Luxembourg banks may face major challenges, because their IT teams are not sure they can design and build systems that will comply with the still unfinalized rules. However, Nigel Fielding, country CEO at HSBC Luxembourg, says his IT team already has a handle on FATCA. “Yes, it’s a challenge, but it is doable.” He is “not concerned about”
Is it using a sledgehammer to crack a nut?” Nigel Fielding (HSBC)
UCITS IV Luxembourg became dec the first country to adopt the EU’s new investment funds directive. Under UCITS IV, asset managers can operate more freely across borders, but must provide more standardized documentation to investors. The law takes effect July 1st.
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STEEL SPINOFF ArcelorMittal pubdec lished a prospectus and demerger plan for the proposed flotation of its stainless steel division. French newspaper Les Echos reported earlier that financial analysts value the new company, Aperam, at US$3.4-4.2 billion.
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