On 25 November 2014, Luxembourg enacted a law modifying the Law of 21 June 2005 transposing into Luxembourg domestic law the European Directive 2003/48/CE related to the taxation of savings income in the form of interest payments (the "Exchange of Information Law").
On 19 January 2015, the Luxembourg tax administration (administration des contributions directes) issued a circular specifying the modifications introduced by the Exchange of Information Law. The most relevant modification introduced by the Exchange of Information Law is the abolishment of the transitional period during which Luxembourg was entitled to levy a 35 % withholding tax on interest payments from savings income made to EU individual tax residents in the case where no exchange of information was made by the paying agent.
As from 1 January 2015, Luxembourg applies the automatic exchange of information on interest payments made by a Luxembourg paying agent to individuals resident in other EU Member States. No exchange of information is to be made when the recipient of the interest payment is a legal entity, a Luxembourg tax resident or an EU third country tax resident.
The Luxembourg paying agent must transmit the relevant information to the Luxembourg tax authorities which will liaise directly with the competent foreign authority. The automatic exchange of information between authorities must be made at least once a year and no later than 30 June of the year following the relevant period.
If no reporting is made by the Luxembourg paying agent, it may receive an administrative penalty up to 0.5 % of the amount of interest payment that the paying agent should have reported to the Luxembourg tax authorities. Paying agents must report to the tax authorities no later than 20 March of the following year. The first reporting for the year 2015 is therefore to occur before 20 March 2016.