When anti-money laundering (AML) becomes anti-tax laundering, it’s a pretty clear sign that compliance officers need to hit the tax books.
Over the past few years, the international tax landscape has been evolving towards more tax transparency and enhanced tax conformity across industries and professions. As such, tax compliance considerations are relevant for both the more traditional financial industry, as well as the alternative investments sector with its real estate investors and private equity boutiques.
More recently, tax compliance was even integrated into the closely monitored AML framework and has been considered by well-established organizations (including the Wolfsberg Group).
In Luxembourg, these developments are tackled through different channels such as an update of specific provisions in the Luxembourg Tax Code and Luxembourg Criminal Code[1] and the issuance of clarifying guidelines by the Luxembourg tax authorities[2] as well as the CSSF (Luxembourg’s financial regulator).
Since 2015, the CSSF issued three main circulars tackling tax compliance topics – ranging from automatic exchange of information to securities lending and investor tax reporting.
CSSF 20/744, therefore, was issued as a response to concerns voiced by the Luxembourg fund industry. It clearly targets tax compliance topics specific to the asset management business by calling on its professionals for more robust tax governance.
Let’s take a look at the key points addressed in the regulator’s latest circular:
Reinforce your technical tax skills
Compared to its predecessor, CSSF 20/744 has a strong technical tax flavor and requires a more in-depth understanding of local and international taxation rules.
That’s one of the main reasons asset managers and other fund industry professionals need to reinforce their technical tax skills to understand and implement the new tax indicators in a comprehensive way.
Identify your tax risks
With CSSF 20/744, the regulator aims to enhance existing tax governance frameworks and strengthen the robustness and stability of the Luxembourg fund industry by systematically tackling potential tax risks.
Accordingly, professionals need to assess and monitor the circular’s tax indicators in order to identify potential tax risks and protect the Luxembourg fund industry from any disruptions or reputational damages.
Implement mitigation measures
The essence of CSSF 20/744 lies in the identification of potential tax risks linked to the asset management industry and the mitigation of identified risks through comprehensive procedures and practical implementation measures.
Based on this, asset managers need to adapt their existing tax compliance policies and AML frameworks to mitigate any potential exposure arising from the new tax indicators.
In a nutshell
- Tax compliance is an ever-evolving topic subject to regulatory supervision and relevant sanctions (including criminal sanctions)
- Asset managers and other fund industry professionals are subject to increased scrutiny when it comes to tax compliance
- It is crucial to demonstrate the robustness of your tax governance framework and ability to identify potential tax risks
- Documenting associated risk mitigation measures and comprehensive procedures is paramount
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This article has been written by Valentina Pavlova.
[1] Law dated 23 December 2016
[2] Circular dated 28 July 2021
