1 

DEPARTMENT OF THE TREASURY 

TECHNICAL EXPLANATION OF THE PROTOCOL 

SIGNED AT LUXEMBOURG ON MAY 20, 2010 

AMENDING THE CONVENTION BETWEEN 

THE GOVERNMENT OF THE UNITED STATES OF AMERICA 

AND 

THE GOVERNMENT OF THE GRAND DUCHY OF LUXEMBOURG 

FOR THE AVOIDANCE OF DOUBLE TAXATION AND 

THE PREVENTION OF FISCAL EVASION 

WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL, 

SIGNED AT LUXEMBOURG ON APRIL 3, 1996 

This is a Technical Explanation of the Protocol signed at Luxembourg on May 

20, 2010 (the “Protocol”), and the related Exchange of Notes (“Exchange of Notes”) 

amending the Convention between the Government of the United States of America 

and the Government of the Grand Duchy of Luxembourg for the avoidance of double 

taxation and the prevention of fiscal evasion with respect to taxes on income, signed at 

Luxembourg on April 3, 1996 (the “existing Convention”). 

Negotiations took into account the U.S. Department of the Treasury’s current tax 

treaty policy and the Treasury Department’s Model Income Tax Convention, published 

on November 15, 2006 (the “U.S. Model”). Negotiations also took into account the 

Model Tax Convention on Income and on Capital, published by the Organization for 

Economic Cooperation and Development (the “OECD Model”), and recent tax treaties 

concluded by both countries. 

This Technical Explanation is an official guide to the Protocol and Exchange of 

Notes. It explains policies behind particular provisions, as well as understandings 

reached during the negotiations with respect to the interpretation and application of the 

Protocol. 

References to the existing Convention are intended to put various provisions of 

the Protocol into context. This Technical Explanation does not, however, provide a 

complete comparison between the provisions of the existing Convention and the 

amendments made by the Protocol and Exchange of Notes. This Technical Explanation 

is not intended to provide a complete guide to the Convention as amended by the 

Protocol and Exchange of Notes. To the extent that the Convention has not been 

amended by the Protocol and Exchange of Notes, the technical explanation of the 

Convention remains the official explanation. References in this technical explanation to 

“he” or “his” should be read to mean “he or she” or “his or her.” 

Article I 

Article I of the Protocol replaces Article 28 (Exchange of Information) of the 

existing Convention. This Article provides for the exchange of information and 

administrative assistance between the competent authorities of the Contracting States. 
2 

Paragraph 1 of Article 28 

The obligation to obtain and provide information to the other Contracting State is 

set out in new paragraph 1. The information to be exchanged is that which is foreseeably 

relevant for carrying out the provisions of the Convention or the domestic laws of the 

United States or Luxembourg concerning taxes of every kind applied at the national level, 

to the extent that the taxation thereunder is not contrary to the Convention. This language 

incorporates the standard of the OECD Model, which is intended to provide for exchange 

of information in tax matters to the widest possible extent and, at the same time, to clarify 

that Contracting States are not at liberty to engage in "fishing expeditions" or to request 

information that is unlikely to be relevant to the tax affairs of a given taxpayer. 

This standard is to be interpreted consistently with 26 U.S.C. section 7602, which 

authorizes the IRS to examine “any books, papers, records, or other data which may be 

relevant or material.” (emphasis added). In United States v. Arthur Young & Co., 465 

U.S. 805, 814 (1984), the Supreme Court stated that the language “may be” reflects 

Congress’s express intention to allow the IRS to obtain “items of even potential

relevance to an ongoing investigation, without reference to admissibility.” (emphasis in 

original). However, the standard would not support a request in which a Contracting 

State simply asked for information regarding all bank accounts maintained by residents of 

that Contracting State in the other Contracting State. 

Exchange of information with respect to each State’s domestic tax law is 

authorized to the extent that taxation under domestic tax law is not contrary to the 

Convention. Thus, for example, information may be exchanged with respect to a covered 

tax, even if the transaction to which the information relates is a purely domestic 

transaction in the requesting Contracting State and, therefore, the exchange is not made to 

carry out the Convention. An example of such a case is provided in the OECD 

Commentary: a company resident in one Contracting State and a company resident in the 

other Contracting State transact business between themselves through a third-country 

resident company. Neither Contracting State has a treaty with the third state. To enforce 

their internal laws with respect to transactions of their residents with the third-country 

company (since there is no relevant treaty in force), the Contracting States may exchange 

information regarding the prices that their residents paid in their transactions with the 

third-country resident. 

The taxes covered for purposes of this Article constitute a broader category of 

taxes than those referred to in Article 2 (Taxes Covered). Exchange of information is 

authorized with respect to taxes of every kind imposed by a Contracting State at the 

national level. Accordingly, information may be exchanged with respect to U.S. estate 

and gift taxes, excise taxes or, with respect to Luxembourg, value added taxes. 

Information exchange is not restricted by Article 1 (General Scope). Accordingly, 

information may be requested and provided under this Article with respect to persons 

who are not residents of either Contracting State. For example, if a third-country resident 

has a permanent establishment in Luxembourg, which engages in transactions with a U.S. 

enterprise, the United States could request information with respect to that permanent 
3 

establishment, even though the third-country resident is not a resident of either 

Contracting State. Similarly, if a third-country resident maintains a bank account in 

Luxembourg, and the Internal Revenue Service has reason to believe that funds in that 

account should have been reported for U.S. tax purposes but have not been so reported, 

information can be requested from Luxembourg with respect to that person’s account, 

even though that person is not the taxpayer under examination. 

Although the term “United States” does not encompass U.S. possessions for most 

purposes of the Convention, Section 7651 of the Code authorizes the Internal Revenue 

Service to utilize the provisions of the Internal Revenue Code to obtain information from 

the U.S. possessions pursuant to a proper request made under Article 26. If necessary to 

obtain requested information, the Internal Revenue Service could issue and enforce an 

administrative summons to the taxpayer, a tax authority (or a government agency in a 

U.S. possession), or a third party located in a U.S. possession. 

Paragraph 3 of the Exchange of Notes lists the information that should be 

provided to the requested State by the requesting State when making a request for 

information under Article 28 to demonstrate the foreseeable relevance of the information. 

While this paragraph contains important procedural requirements that are intended to 

ensure that “fishing expeditions” do not occur, the provisions of this paragraph must be 

interpreted liberally in order not to frustrate effective exchange of information. 

Subparagraph 3)a) of the Exchange of Notes provides that a request must include 

the identity of the person under examination or investigation. In a typical case, the 

identity of the person under examination or investigation would include a name, and to 

the extent known, an address, account number, or similar identifying information. There 

can, however, be circumstances in which there is information sufficient to identify the 

person under examination or investigation even though the requesting State cannot 

provide a name. For example, this requirement may be satisfied by supplying an account 

number or similar identifying information. 

Subparagraph 3)b) of the Exchange of Notes provides that a request for 

information must contain a statement of the information sought, including its nature and 

the form in which the requesting State wishes to receive the information from the 

requested State. Subparagraph 3)c) of the Exchange of Notes provides that a request for 

information must contain a statement of the tax purpose for which the information is 

sought. Subparagraph 3)d) of the Exchange of Notes provides that a request must also 

include the grounds for believing that the information requested is held in the requested 

State or is in the possession or control of a person within the jurisdiction of the requested 

State. Subparagraph 3)e) of the Exchange of Notes provides that, to the extent known, 

the name and address of any person believed to be in possession of the requested 

information must also be provided. Subparagraph 3)f) provides that a requesting State 

must also provide a statement that the request is in conformity with the laws of the 

requesting State, that if the requested information was within the jurisdiction of the 

requesting State it would be able to obtain the information, and that it is in conformity 

with the Convention. Subparagraph 3)g) of the Exchange of notes provides that the 
4 

requesting State has pursued all means available in its own territory to obtain the 

information except those that would give rise to disproportionate difficulties. 

Paragraph 2 of Article 28 

New paragraph 2 provides assurances that any information exchanged will be 

treated as secret, subject to the same disclosure constraints as information obtained under 

the laws of the requesting State. Information received may be disclosed only to persons, 

including courts and administrative bodies, involved in the assessment, collection, or 

administration of, the enforcement or prosecution in respect of, or the determination of 

appeals in relation to, the taxes referred to in paragraph 1. The information must be used 

by these persons in connection with the specified functions. Information may also be 

disclosed to legislative bodies, such as the tax-writing committees of Congress and the 

Government Accountability Office, engaged in the oversight of the preceding activities. 

Information received by these bodies must be for use in the performance of their role in 

overseeing the administration of U.S. tax laws. Information received may be disclosed in 

public court proceedings or in judicial decisions. 

Paragraph 3 of Article 28 

New paragraph 3 provides that the obligations undertaken in paragraph 1 and 2 to 

exchange information do not require a Contracting State to carry out administrative 

measures that are at variance with the laws and administrative practice of either State. 

Nor is a Contracting State required to supply information not obtainable under the laws or 

in the normal course of the administratiion of either State, or to disclose trade secrets or 

other information, the disclosure of which would be contrary to public policy. 

Thus, a requesting State may be denied information from the other State if the 

information would be obtained pursuant to procedures or measures that are broader than 

those available in the requesting State. However, the statute of limitations of the 

Contracting State making the request for information should govern a request for 

information. Thus, the Contracting State of which the request is made should attempt to 

obtain the information even if its own statute of limitations has passed. In many cases, 

relevant information will still exist in the business records of the taxpayer or a third party, 

even though it is no longer required to be kept for domestic tax purposes. 

While paragraph 3 states conditions under which a Contracting State is not 

obligated to comply with a request from the other Contracting State for information, the 

requested State is not precluded from providing such information, and may, at its 

discretion, do so subject to the limitations of its internal law. 

Paragraph 4 of Article 28 

New paragraph 4 provides that when information is requested by a Contracting 

State in accordance with this Article, the other Contracting State is obligated to obtain the 
5 

requested information as if the tax in question were the tax of the requested State, even if 

that State has no direct tax interest in the case to which the request relates. In the absence 

of such new paragraph 4, some taxpayers have argued that paragraph 3(a) prevents a 

Contracting State from requesting information from a bank or fiduciary that the 

Contracting State does not need for its own tax purposes. This paragraph clarifies that 

paragraph 3 does not impose such a restriction and that a Contracting State is not limited 

to providing only the information that it already has in its own files. 

Paragraph 1 of the Exchange of Notes also provides that the requested State shall 

exchange such information regardless of whether the conduct being investigated would 

constitute a crime under the laws of the requested State if it had occurred in the territory 

of the requested State. 

Paragraph 5 of Article 28 

New paragraph 5 provides that a Contracting State may not decline to provide 

information solely because that information is held by financial institutions, nominees or 

persons acting in an agency or fiduciary capacity. Thus, paragraph 5 would effectively 

prevent a Contracting State from relying on paragraph 3 to argue that its domestic bank 

secrecy laws (or similar legislation relating to disclosure of financial information by 

financial institutions or intermediaries) override its obligation to provide information 

under paragraph 1. This paragraph also requires the disclosure of information regarding 

the beneficial owner of an interest in a person, such as the identity of a beneficial owner 

of bearer shares. 

Paragraph 2)a) of the Exchange of Notes provides that each Contracting State 

shall ensure that its competent authority has the authority to obtain and exchange upon 

request information held by financial institutions, nominees, or persons acting in an 

agency or fiduciary capacity, including nominees and trustees. Paragraph 2)b) of the 

Exchange of Notes provides that each Contracting State shall also ensure that its 

competent authority has the authority to obtain and provide upon request information 

regarding the ownership of companies, partnerships, trusts, foundations, and other 

persons, including information regarding settlers, trustees, and beneficiaries. A 

Contracting State is not obligated to provide information that is neither held by its 

authorities (which for this purpose includes government agencies, political subdivisions 

and local authorities) nor in the possession or control of persons who are within it 

territorial jurisdiction, nor is it obligated to provide ownership information with respect to 

publicly traded companies or public collective investment funds or schemes unless such 

information can be obtained without giving rise to disproportionate difficulties. 

Paragraph 6 of Article 28 

New paragraph 6 provides that the requesting State may specify the form in which 

information is to be provided (e.g., depositions of witnesses and authenticated copies of 

original documents). The intention is to ensure that the information may be introduced as 
6 

evidence in the judicial proceedings of the requesting State. The requested State should, 

if possible, provide the information in the form requested to the same extent that it can 

obtain information in that form under its own laws and administrative practices with 

respect to its own taxes. 

Paragraph 7 of Article 28 

New paragraph 7 provides for assistance in collection of taxes to the extent 

necessary to ensure that treaty benefits are enjoyed only by persons entitled to those 

benefits under the terms of the Convention. Under paragraph 7, a Contracting State will 

endeavor to collect on behalf of the other State only those amounts necessary to ensure 

that any exemption or reduced rate of tax at source granted under the Convention by that 

other State is not enjoyed by persons not entitled to those benefits. For example, if the 

payer of a U.S.-source portfolio dividend receives a Form W-8BEN or other appropriate 

documentation from the payee, the withholding agent is permitted to withhold at the 

portfolio dividend rate of 15 percent. If, however, the addressee is merely acting as a 

nominee on behalf of a third country resident, paragraph 7 would obligate Luxembourg to 

withhold and remit to the United States the additional tax that should have been collected 

by the U.S. withholding agent. 

This paragraph also makes clear that the Contracting State asked to collect the tax 

is not obligated, in the process of providing collection assistance, to carry out 

administrative measures that would be contrary to its sovereignty, security or public 

policy. 

Treaty effective dates and termination in relation to exchange of information 

Article II of the Protocol sets forth rules governing the effective dates of the 

provisions of Article I of the Protocol. Once the Protocol is in force, the competent 

authority may seek information under the Convention, as amended by the Protocol, with 

respect to a year beginning on or after January 1, 2009. With respect to earlier years, the 

provisions of Article 28 of the Convention prior to amendment by the Protocol and 

Exchange of Notes shall apply. 

A tax administration may also seek information with respect to a year for which a 

treaty was in force after the treaty has been terminated. In such a case the ability of the 

other tax administration to act is limited. The treaty no longer provides authority for the 

tax administrations to exchange confidential information. They may only exchange 

information pursuant to domestic law or other international agreement or arrangement. 

Article II 

Article II of the Protocol contains the rules for bringing the Protocol into force and 

giving effect to its provisions. 

Paragraph 1 
7 

Paragraph 1 provides that the Protocol is subject to ratification in accordance 

with the applicable procedures of the United States and Luxembourg. Further, the 

Contracting Stats shall notify each other by written notification, through diplomatic 

channels, when their respective applicable procedures have been satisfied. 

In the United States, the process leading to ratification and entry into force is as 

follows: Once a protocol or treaty has been signed by authorized representatives of the 

two Contracting States, the Department of State sends the protocol or treaty to the 

President, who formally transmits it to the Senate for its advice and consent to 

ratification, which requires approval by two-thirds of the Senators present and voting. 

Prior to this vote, however, it generally has been the practice of the Senate Committee on 

Foreign Relations to hold hearings on the protocol or treaty and make a recommendation 

regarding its approval to the full Senate. Both Government and private sector witnesses 

may testify at these hearings. After the Senate gives its advice and consent to ratification 

of the protocol or treaty, an instrument of ratification is drafted for the President's 

signature. The President's signature completes the process in the United States. 

Paragraph 2 

Paragraph 2 provides that the Protocol will enter into force on the date of the later 

of the notifications referred to in paragraph 1. Once the Protocol is in force, the 

competent authority may seek information under Article 26 as amended by the Protocol 

with respect to a year beginning on or after January 1, 2009.