13.12.2019
10'
Important Updates and Dates for the Implementation of the Regulatory Requirements for 2020
FATCA Certification
Other than with the QI Certification, FATCA Responsible Officers will receive no message of approval that the FATCA certification has been approved - neither in the FATCA Registration Portal nor by email from the IRS. The status “Submitted” in the portal will remain. The IRS will contact the FFI if they need any other information.
FFIs that did not certify timely should receive an event of default notice via the message board in the FATCA Registration Portal and an email from the IRS will be sent to the Responsible Officer.
If FFIs submitted a certification containing an error, they cannot delete or overwrite it but should submit a new certification instead and explain why they submitted a new one.
FFIs unable to complete the certification should contact the IRS. Taking no action could lead to the termination of the FFI’s FATCA status.
Cases where FFIs received a result “Failure to Certify” will be treated by the IRS individually, however, according to the FATCA Online Registration User Guide, this result leads to an event of default which could cause the termination of the FFI’s FATCA status. The IRS emphasizes that FFIs should take corrective actions and contact the IRS timely.
FFIs that do not have a certification requirement (for example, certain Reporting Model 1 IGA FFIs) should update their FATCA classification in the FATCA Registration Portal to avoid inapplicable certification-related notices in the future.
FFIs that cancel their FFI agreement and are required to submit a final certification will have access to the portal up to six months after the cancellation to perform the final certification. Refer also to the IRS FATCA FAQ.
For further questions regarding the FATCA Certification see our FATCA Responsible Officer Certification FAQ.
QI Certification
Many QI Responsible Officers that certified for certification period 2015-2017 have had their certifications reviewed during the year 2019. We have seen many cases where the IRS Foreign Intermediaries Team contacted the QI for more information. This was especially the case where QIs applied for a periodic review waiver. For QIs which have not received any status updates in the QI Application and Account Management System (QIAAMS) until now, we recommend to carefully monitor the portal in the coming months for any changes in the certification status.
For QIs which did not certify timely, the IRS will send out event of default notices to the Responsible Officer via email. If the IRS does not receive any response from the Responsible Officer, the IRS will eventually send out notice of termination letters.
As soon as the deadline for the submission of a QI Responsible Officer certification is overdue, the link for the certification will no longer be available. QIs that missed the deadline are to contact the IRS Foreign Intermediaries Team and provide an explanation. The IRS Foreign Intermediaries Team will then provide instructions on how to proceed.
For QIs which applied for a waiver of periodic review and had their waiver applications rejected have six months from the date of the rejection to perform a QI Periodic Review and submit a certification including the results of the periodic review.
With respect to the upcoming certifications of QIs that certify for the next certification period (or QIs that were not required to make their first certification yet), the deadline for the certification will be July 1 of the calendar year following the end of the certification period. For QIs which select the third respectively last year of the certification period for a periodic review, the deadline for the submission of the certification will be extended to the end of the calendar year following the end of the certification period. However, QIs must select the respective year in the QI Application and Account Management System (QIAAMS) as of July 1 for the deadline in the QIAAMS to update to December 31. We have experienced events where the portal does not update the certification deadline automatically. If this is the case, QI Responsible Officers should contact the IRS Foreign Intermediaries Team directly.
For further questions regarding the QI Certification see our QI Responsible Officer Certification FAQ.
FATCA Group Requests to Swiss Reporting FFIs
As discussed in our newsletter "U.S. Senate Approval of Amendment to the DTA - FATCA Group Requests", with entry into force of the amendment to the double taxation agreement between Switzerland and the USA, the IRS will now be able to make group requests to the Swiss Federal Tax Authority (SFTA) under FATCA.
As part of the FATCA group requests, the IRS may request account information on any non-consenting U.S. account holders or NPFFIs reported in aggregate form to the IRS. Upon receipt of the request by the IRS, the SFTA will request Swiss FFIs to report information on these financial accounts. The SFTA has recently published an updated version of the FATCA Information Delivery User Guide describing the specific form for information packages submitted to the SFTA.
After receipt of a disclosure order by the FTA, the FFI will have ten days to submit the requested information to the SFTA. If the FFI fails to respond to the request within ten days, the SFTA may impose penalties. In addition, if no information is delivered within eight months after the receipt of the request, the FFI shall be required to apply a FATCA withholding tax on the accounts held by non-consenting account holders.
There is no official timeline on when the group requests will be made to the FTA. We expect the first requests to be made during the first half of year 2020. Since it is not possible to predict which FFIs will be affected with group requests we recommend to assign high priority to the preparation of the information packages.
For more information, please contact us. PEQ can provide all types of support in preparing the FATCA group request information packages.
Other News and Upcoming QI/FATCA/CRS Deadlines
Section 871(m): On December 16, 2019 the IRS issued final Section 871(m) Regulations and Notice 2020-02 extending the phase-in period for certain rules under Section 871(m), 1441, 1461 and 1473 of the Internal Revenue Code (the “Section 871(m) Regulations”).
The final Section 871(m) Regulations include:
A finalized definition of the terms “broker” and “foreign securities exchange” for purposes of Section 871(m).
Rules for determining responsible parties for potential section 871(m) transactions (1) if multiple brokers are involved in the transaction, (2) if a transaction is traded on an exchange and cleared by a clearing organization or (3) if a transaction is a structured note, warrant, convertible stock or convertible debt.
Notice 2020-02 provides relief and extends the deadlines for the implementation of the requirements under these regulations as follows:
The introduction of non-Delta-one transactions was delayed to January 1, 2023. Also, the good faith period for delta-one transactions was extended to 2022 and for non-delta-one transactions to 2023. This means that until January 1, 2023 only delta-one instruments and contracts referencing U.S. underlyings will be in scope for Section 871(m).
The IRS extended the simplified standard to determine whether transactions are combined transactions to January 1, 2023. The IRS confirms that transactions that are combined under the simplified standard shall remain combined until all transactions that were combined under this rule were disposed.
The IRS has extended the applicability of several provisions with respect to Qualified Derivatives Dealers (“QDD”) to January 1, 2023:
Withholding agents making payments of a dividend to a QDD are not required to withhold on that payment if the withholding agent can reliably associate the payment with a valid withholding form.
QDDs shall determine their tax liability using the net delta approach until the beginning of 2023.
The IRS extended the tax exemption on dividends and dividend equivalents received by a QDD in its equity derivatives dealer capacity until January 1, 2023.
The QDD shall remain liable for tax on dividends and dividend equivalents received in any capacity other than as equity derivatives dealer, and on any other U.S. source FDAP payment that it receives regardless of its capacity. Also, the QDD remains required to withhold on dividend equivalents paid to a non-U.S. person on a section 871(m) transaction.
A Periodic Review with respect to a QDD’s QDD activities for 2017 until 2022 is not required. A QI that is a QDD must choose 2023 or a later year within its certification period to perform its periodic review, unless its applicable certification period ends in 2022 or an earlier year.
The transition rules in notice 2010-46, which introduced the Qualified Securities Lender regime in the context of securities lending and sale repurchase agreements, were extended to January 1, 2023.
Renewal of QI Agreement: For QIs having a QI Agreement in force starting January 1, 2017, the QI Agreement expires by December 31, 2022. We expect that a new text of the QI Agreement will be published within the next 6-18 months to address changes in the Chapter 3 regulations, to include Section 1446(f) and to introduce additional provisions for the implementation of Section 871(m) and the QDD regime.
Section 1446(f): On May 7, 2019 the IRS released proposed regulations under Section 1446(f) of the U.S. Internal Revenue Code which provide detailed rules on withholding with respect to dispositions of publicly traded partnership (PTP) interests. The new rules will be in effect in 60 days upon their finalization. Withholding agents may have to get ready to develop a process for the implementation of a withholding process on short notice, if dispositions from PTPs end up not being exempt.
Requesting LOB Information: Under the QI Agreement (Rev. Proc 2017-15) QIs are required to request from entity account holders which apply for tax treaty benefits information regarding the Limitation on Benefits Provision (LoB Provision) of the respective double taxation agreement they satisfy (e.g. via Part III of the 2017 W-8BEN-E). Please be strongly reminded that the deadline for requesting this LOB information is January 1, 2020.
QI, FATCA and CRS Reporting for tax year 2019: Since tax year 2019 is coming to an end, FIs will start preparing the QI, FATCA and CRS reporting very soon. PEQ will inform in detail on the upcoming reporting requirements in early 2020 and, as always, PEQ will support FIs with their reporting responsibilities in any capacity necessary.