17.01.2024

25'

2024 Reporting Reminder

We would like to inform all Swiss financial institutions on their reporting requirements under CRS, FATCA and QI.

The QI Reporting Requirements outlined in this newsletter will also be applicable to non-Swiss QIs. For the non-Swiss CRS and FATCA reporting requirements, the respective local implementation guidance must be consulted.

As in previous years, PQS will be able to support FIs with preparing and uploading FATCA, QI and CRS reportable data to the respective authorities.

CRS Reporting

Important Changes in Brief

In addition to account holders resident in jurisdictions that were reportable for tax year 2022, from tax year 2023 on, Swiss financial institutions must also report all account holders resident in countries having an AEOI Agreement in force since January 1, 2023. A list of these states is available on the SFTA website. The following countries are new for the tax year 2023 reporting:

Of these states and territories, New Caledonia is declared a "permanent non-reciprocal jurisdiction" and Sint Maarten a “temporary non-reciprocal jurisdiction”. This means that Sint Maarten and New Caledonia will initially provide information on financial accounts but will not receive such information. In the case of Sint Maarten, the jurisdiction will not receive information until it meets all the confidentiality requirements of the CRS. Reporting Swiss financial institutions must nevertheless collect the relevant data from the time of activation of the CRS (January 1, 2023) for Sint Maarten, and forward them to the SFTA within the specified period, however, the SFTA will only forward this data to Sint Maarten once it fulfil the conditions for a reciprocal data exchange.

In addition, the Swiss Federal Council suspended the data exchange to Russia – the obligations of Swiss Reporting FIs towards the SFTA remain however unaffected by this decision in that they are required to collect and report to the SFTA the financial account data of tax residents in Russia.

Periodic Filing Requirements

Swiss financial institutions must report CRS data to the SFTA. To do so, Swiss Reporting FIs must register on the Swiss registration and filing portal.

The Reporting FIs must transmit the reportable information to the SFTA by June 30, 2024 the latest.

The Reporting FIs registered with the SFTA must, regardless of whether they maintained reportable accounts in the respective calendar year, submit a reporting to the SFTA. If the Reporting FI did not have any reportable accounts, a nil reporting is required.

The reports must be filed according to the SFTA technical guidance.

Additionally, the SFTA has released a data transmission guide outlining technical specifications on how to transmit data to the FTA.

The data can be filed in three ways:

  1. Upload of encrypted XML-file via SFTA Portal (XML Data-Upload)

  2. Manual data entry via SFTA Portal (Online form)

  3. Machine-to-machine webservice interface (M2M)

If a FI chooses the third option, the interface must be activated first. The reports cannot be filed in paper form.

Should you seek assistance in preparing the CRS reporting, please do not hesitate to contact us.

FATCA Form 8966 Reporting

Important Changes in Brief

For the tax year 2023, there have been no changes to the FATCA Reporting standards applicable to Swiss FFIs.

Periodic Filing Requirements

Swiss Reporting Model 2 FFIs have the following two reporting deadlines for the tax year 2022:

To request an automatic 90-day extension of time to file Forms 8966 to report consenting accounts, use Form 8809-I. Please note that Swiss Reporting Model 2 FFIs cannot request an extension of time to file Forms 8966 to report non-consenting accounts.

It is the responsibility of the FFI to perform the 8966 FATCA reporting, a delegation of the responsibility to an upstream custodian is not possible.

As a Swiss Reporting Model 2 FFI, the 8966 FATCA reporting is performed electronically through the International Data Exchange Service (IDES). The FATCA XML Schemas and Business Rules for Form 8966 and the publications contained therein provide guidelines to meet the FATCA reporting requirements.

Please be reminded that the certificates used for the encryption of FATCA XML-files may expire: Before starting to prepare the 8966 reporting please verify that all certificates are up to date.

PQS has acquired the status “Third Party Preparer” with the IRS and can encrypt FATCA reportings from reporting financial institutions with its own certificate and submit the reportings to the IRS through its IDES account. Should you seek assistance in generating the FATCA XML-file or the encrypted file to be submitted onto IDES through your or our IDES account, please do not to hesitate to contact us.

FATCA Group Request Reporting

The aggregated reporting of non-consenting accounts may result in a group request from the U.S., which in turn requires a Reporting Swiss Financial Institution to transmit account information to the SFTA. The information required to be exchanged with the SFTA include a SEI-XML file, a FATCA-XML file and account documentation in PDF format. More information can be found in our newsletters “U.S. Senate Approval of Amendment to the DTA - FATCA Group Requests” (31.07.2019), “Important Updates and Dates for the Implementation of the Regulatory Requirements for 2020” (13.12.2019) and “Important Update on Swiss FFIs” (22.09.2020) or on the website “Administrative assistance to FATCA“ of the SFTA.

We recommend affected Swiss financial institutions to continuously gather the required information and documentation for a possible transmission to the SFTA and to test the prepared information packages with the SFTA prior to the receipt of any request.

For more information, please contact us. PQS can provide all types of support in preparing the FATCA group request information packages.

QI Form 1042-S and 1042 Reporting

2023 Form 1042-S

Important Changes in Brief

Several provisions of the Section 1446(f) regulations came in effect on January 1, 2023 requiring withholding on transfers of publicly traded partnership (“PTP”) interests to a non-U.S. partner of the PTP and enabling QIs to act as withholding agents for PTP distributions. These new regulations have brought the following changes to 1042-S reporting:

Income code 57 will be used to report an amount realized from the transfer of PTP interests and PTP distributions (if they were identified in the qualified notices as an amount in excess of cumulative net income, i.e. “ECNI”) subject to Section 1446(f) withholding.

A new income code 58 was introduced to report income associated with a PTP distribution subject to Section 1446(f) withholding due to the absence of a qualified notice specifying the income’s nature.

Distributions of a PTP reported with the income codes 27, 57 (if ECNI) and 58 must be reported separately on a single 1042-S form for each PTP and recipient concerned, if the recipient is not pooled. Information on the PTP must be reported in the payer boxes 16a-16e.

This chapter 3 status code should be used when reporting amounts realized from a transfer of a PTP or a PTP distribution to a Disclosing QI. The information on the Disclosing QI should be entered in the boxes 15a-15i. The disclosed partner, account holder of the Disclosing QI, shall be reported as the recipient of the amounts.

Amounts realized or PTP distributions made to a QI, that does not act as a Disclosing QI, must be reported to the QI as recipient of the amounts.

The chapter 3 status code 38 must be used to report a payment to or from a PTP. A withholding agent acting as nominee for distributions made by a PTP subject to withholding under Section 1446(a) should enter information on the PTP in the boxes 16a through 16e.

When reporting amounts with the income codes 27, 57 and 58 made to an intermediary acting as Disclosing QI or Nonqualified Intermediary (“NQI”), the broker, nominee or PTP shall send a copy of the 1042-S issued to the account holder of the Disclosing QI or NQI also to the Disclosing QI resp. NQI.

A withholding agent reporting amounts realized and PTP distributions made to a NQI should use the recipient “Unknown recipient”, unless the withholding agent agrees in writing to report the amounts to the account holder of the NQI. In case these amounts have been made to a flow-through entity, the recipient to be reported on the 1042-S is the flow-through entity, and not the indirect account holder.

Important Reminders in Brief

Income Code 56

Income code 56 will be used for any dividend equivalent resulting from a transaction that is a combined transaction subject to reporting and withholding under Section 871(m).

LOB Code 12 was added to represent that the double tax treaty between the USA and the account holder’s tax domicile does not provide a LOB article. LOB codes should be used by a QI to report payments made to an account holder that is an entity claiming treaty benefits and not if the QI reports on a pooled basis. This has also been specified in the new QI Agreement. Please be reminded that LOB codes are not required on a pooled Form 1042-S but only if the form is issued to a recipient.

Starting with tax year 2021, the extension requests to forward recipient copies must be submitted by fax. See Section Periodic Filing Requirements below.

Periodic Filing Requirements

A QI must file the Form 1042-S and 1042 reporting with the IRS by March 15, 2024. The Forms 1042-S must be filed electronically as a .txt-file through the FIRE system.

The specifications for the electronic filing of Forms 1042-S for the tax year 2022 can be found in Publication 1187. Should you seek assistance in generating the electronic file, please do not to hesitate to contact us.

As mentioned before, the IRS performed an update of the FIRE system. After this update, to use the FIRE system, the QIs must enter the filing information (TCC, EIN and Business Name) exactly as currently recorded in the FIRE System.

Our first post-update experiences showed that QIs have had various difficulties with accessing their FIRE accounts. These difficulties were mostly attributable to outdated information, spelling differences between a QI’s legal name and the name that the IRS has on record, or the use of special characters in the entity or contact person information. To ensure you have enough time to mitigate possible access issues, we recommend all QIs to test the access to their FIRE accounts.

We informed about the changes in the IRS Filing Information Returns Electronically (“FIRE”) Production System. In particular, we informed that in order to become a transmitter, an entity needs to apply for a Transmitter Control Code (“TCC”) Since September 2021, new TCC can only be obtained through the new IR for TCC application system (“IR-TCC”). Updates to current TCCs can only be made through the IR-TCC since August 1, 2022. The IRS requires current TCC holders to register in IR-TCC until August 1, 2023 to be able to file electronically via FIRE. On August 2, 2023, the IRS has informed that non-U.S. TCC holders may still use their TCC, as the IRS has automatically migrated these TCC to the new IR-TCC system. These TCCs will remain valid and accessible until the earlier of two dates: August 1, 2028, or the decommissioning of the FIRE System (which is set to be replaced by the upcoming IRIS - Information Returns Intake System). This development requires no additional action from current TCC holders.

PQS acquired the status third-party transmitter (“TPT”) with the IRS and can transmit electronic files such as the electronic 1042-S on behalf of QIs to the IRS by using its own TCC and EIN. Should you need our support regarding electronic filing, please do not hesitate to contact us.

To request an automatic extension 30-day extension of time to file Forms 1042-S use Form 8809. The form can be completed and submitted online through the FIRE System. For an extension request to be accepted, it must be filed with the IRS by March 15, 2024.

Please note that if a QI is required to file recipient-specific Forms 1042-S, the Form 8809 does not extend the deadline to furnish the copies of those forms. To extend the deadline to file a recipient-specific Form 1042-S you have to request a 30-day extension of time by fax by using the following contact information:

Internal Revenue Service Technical Services Operation
Attn: Extension of Time Coordinator
Fax: +1 304 579 4105

The letter must include (a) your name, (b) your TIN, (c) your address, (d) type of return, (e) a statement that your extension request is for providing statements to recipients, (f) reason for delay, and (g) the signature of the payer or authorized agent. Your request must be dated by the date on which the statements are due to the recipients.

2023 Form 1042

Important Changes in Brief

As of January 1, 2023, a QI is required to report the withholding on the amount realized from a transfer of a PTP or a PTP distribution during the tax year, as long as the bank was acting as QI for the PTP holding.

On February 23, 2023, the IRS issued final regulations outlining electronic filing mandates for specific returns and related documents. These regulations dictate that financial institutions will soon need to electronically submit Form 1042 through the Modernized e-File (MeF) platform. This requirement will apply to fiscal years concluding on or after December 31, 2023. In practical terms, this means that the first electronic filing of Form 1042 will be obligatory for the tax year 2023, with a due date of March 15, 2024 (or September 15, 2024, after extension). This development will have a considerable impact on all Qualified Intermediaries (QIs).

The option to physically submit Form 1042 will no longer be available, unless a Qualified Intermediary (QI) obtains a waiver exempting them from mandatory electronic filing.

Similar to the challenges presented by the IR-TCC system, there are notable hurdles for QIs in gaining access to the MeF platform. Notably, registration with MeF again requires an individual U.S. Taxpayer Identification Number (TIN). Additionally, the MeF system is designed primarily for third parties filing on behalf of taxpayers (so-called "electronic return originators"). Consequently, it's highly probable that most QIs will need to engage a third party to file their Form 1042 on their behalf.

In response to this challenge, we are actively developing a solution that will enable us to function as an electronic return originator. We anticipate providing more updates on this matter soon, and we encourage all interested parties to subscribe to our newsletter to stay informed on the latest developments.

Important Reminders in Brief

The IRS informed that penalties for late filing may be applied to QIs which file Forms 1042 without the signing date. Therefore, we would like to remind QIs to ensure that their Forms 1042 are dated properly in the format MM-DD-YYYY.

Since the legal name change procedure via Form 4419 was discontinued, the IRS requires all QIs which changed their name in QI Application an Account Management System (QAAMS) to also notify the IRS Service Center of the name change by mailing a respective letter to the Internal Revenue Service, Ogden, UT 84201-0023. Since a discrepancy in the IRS records may lead to issues with the processing of information returns, we would like to remind the QIs which have recently changed their legal name to send a respective letter to the IRS. To perform the name change correctly, follow the guidance in the answer to the question 22 of the IRS QI/WP/WT FAQs.

If a QI or any its branch is a Qualified Derivatives Dealer (QDD), the taxpayer must attach to the Form 1042 a Schedule Q (Form 1042) , Tax Liability of Qualified Derivatives Dealer (QDD), for each QI or its branch that is QDD. The QI must file Form 1042 and must complete and attach Schedule Q (Form 1042) for each QDD, even if the QDD has a tax liability of zero. The new Schedule Q (Form 1042) replaces the previous requirement to attach a statement to the Form 1042 to provide information regarding a QDD's tax liability.

If a QI or any its branch is a Qualified Derivatives Dealer (QDD), the taxpayer is required to file a Form 1120-F as specified in the new QI Agreement and attach to the Form 1120-F a Schedule Q (Form 1120-F), Tax Liability of Qualified Derivatives Dealer (QDD), for each QI or its branch that is QDD. For specific assistance on filing the Form 1120-F please contact us.

Please be reminded that QIs are required to round amounts so that only whole dollar amounts are reported. Amounts with 01 to 49 cents are rounded down, while amounts with 50 to 99 cents are increased to the next dollar.

Please be reminded that Section 3 of Form 1042 applies to payments made by a withholding agent under any potential section 871(m) transaction (rather than just payments made under notional principal contracts or other derivatives contracts that reference a U.S. stock or underlying security). If you are acting as withholding agent for amounts treated under Section 871(m) (usually under Income Code 40), you should check the Box in Section 3.

Periodic Filing Requirements

A QI must file the Form 1042 with the IRS by March 15, 2024. There are new electronic filing requirements which we have outlined above. For completeness' sake, we include the old paper form requirements below, but please note, that so far, the IRS has not provided guidelines on how to be exempt from electronic filing.

Old paper filing requirements (outdated):

Form 1042 must still be filed on paper. You may be required to attach copies of Forms 1042-S received by upstream withholding agents. For filing Form 1042, please use the following address:

Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409
USA

Be sure to retain proof that you mailed the tax forms on time. By having proof of filing, you can avoid late filing penalties. If a private delivery service (e.g. DHL, FedEx etc.) is used, please utilize the following street address:

Ogden - Internal Revenue Submission Processing Centre
1973 Rulon White Blvd.
Ogden, UT 84201
USA

Time Extension

There is the option to request an automatic extension 6-month extension of time to file Form 1042 by using Form 7004. The form can be submitted electronically through the Modernized e-File (MeF) platform or on paper per mail. Please note the Form 7004 does not extend the time to pay your taxes due. The deadline to pay your taxes remains unchanged.

For completing Form 7004 on paper, please use the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
USA

If a private delivery service (e.g. DHL, FedEx etc.) is used, please utilize the following street address:

Ogden - Internal Revenue Submission Processing Centre
1973 Rulon White Blvd.
Ogden, UT 84201
USA

Should you seek assistance in generating the requests for extension, please do not to hesitate to contact us.

QI Form 1099 Reporting

Important Changes in Brief

The threshold for electronic filing was lowered from 250 forms to 10 forms for tax year 2024 and onwards.

Important Reminders in Brief

Since the introduction of FATCA, more and more QIs started reporting reportable payments paid out to U.S. non-exempt account holders via Forms 1042-S form using a so-called “Chapter 4 Pool of U.S. Payees”. A QI is generally permitted to report payments made to a U.S. non-exempt account holder on a pooled basis if that account holder is also reported under FATCA.

However, this rule does not apply to all types of account holders, and we have seen many QIs applying the abovementioned exception too broadly. Therefore, please be strongly reminded that a pooled basis reporting of U.S. non-exempt recipients is not available for payments to certain indirect account holders, such as indirect account holders of nonqualified intermediaries (NQI) or flow-through entities (FTE), if these do not fulfill the required specifications under FATCA. Generally, payments paid out to flow-through entities and nonqualified intermediaries are only eligible to be reported via a U.S. Payees Pool if they fulfill the following conditions:

If the FTE or NQI does not fulfill these conditions, the QI is still required to report the payments via Form 1099.

In addition, we would like to remind that QIs must continue to apply backup withholding on undocumented U.S. accounts under chapter 61 on reportable payments, if applicable, for the period during which an account is treated as undocumented U.S. account. Accounts subject to backup withholding are still subject to reporting via Forms 1099 and 945.

Starting with tax year 2021, QIs filing Forms 1099 in paper must use the following address:

Internal Revenue Service
Austin Submission Processing Center
P.O. Box 149213
Austin, TX 78714
USA

Periodic Filing Requirements

In cases where a QI has to file a 1099 reporting, it must meet one of the following deadlines depending on what and how is submitted:

PQS acquired the status third-party transmitter ("TPT") with the IRS and can generate and transmit electronic files such as the electronic 1099 on behalf of QIs to the IRS by using its own TCC and EIN. Should you need our support regarding electronic filing, please do not hesitate to contact us.

Please note that the 1099 reporting on paper cannot be filed using the downloadable PDF. Copies 1, B, 2 and C can be filled out online in a PDF format, but the 1099 paper forms must be filed by ordering originals from the IRS. Should you require original paper forms for the 1099 reporting, they can be ordered from the IRS, or directly from us.

For a 30-day extension of time to file Forms 1099, use Form 8809. The Form 8809 can be filed electronically through the FIRE system no later than the above-described filing deadlines.

Please note that filing the Form 8809 does not extend the deadline for providing copies of the Form 1099 to recipients. If you need additional time to provide copies of Forms 1099 to the recipients, you have to request a 30-day extension of time by fax using the following details:

Internal Revenue Service Technical Services Operation
Attn: Extension of Time Coordinator
Fax: +1 304 579 4105

The letter must include (a) payer name, (b) payer TIN, (c) payer address, (d) type of return (Form 1042-S, Form W-2, specific 1099 family form), (e) a statement that your extension request is for providing statements to recipients, (f) reason for delay, and (g) the signature of the payer or authorized agent.

Please remember that it is the primary responsibility of the QI to ensure that the 1099 reporting has been performed, even if the reporting has been delegated to a custodian.