08.08.2024

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QI Update

QI: Extension of the QI Certification Due Date

On August 1, 2024, the IRS issued FAQ Q4 on the QI/WP/WT FAQs page. This update postpones the due date for QIs that are selecting either the first or second year of the certification period for their periodic review, or for those QIs applying for a waiver of the periodic review. Originally set for July 1st of the year following the certification period, the new due date is now November 1st. This adjustment will be in effect for the duration of the current QI Agreement (Rev. Proc 2022-43), which extends until December 31, 2028. QIs with a certification period 2021 to 2023 and QIs that do not perform a periodic review for 2023 will therefore now certify on November 1, 2024.

Additionally, for QIs selecting the third year of the certification period for their periodic review, the deadline to make the selection of the periodic review year is extended to November 1st of the year following the certification period. The certification due date for these entities remains unchanged at December 31st of the year following the certification period. Nevertheless, this year, for QIs with a certification period 2021 to 2023 with a periodic review year of 2023, the previously granted one-time extension , which moved the due date from December 31, 2024, to March 1, 2025, remains in effect.

We are pleased with these updates, as from now on, QI Responsible Officers (ROs) will not have to wait for a potential extension of the certification deadline by the IRS, but can henceforth confidently rely on at least the November 1 deadline to first file their Forms 1042 by September 15 (extended deadline) and subsequently certify with a finalized reconciliation (Part 8 of the certification). Please also refer to our 2024 certification reminder and the certification FAQ for more information.

QI: TCC relief for Non-U.S.-Filers

In our previous newsletter, we highlighted the IRS's introduction of the new Information Returns (IR) Application for Transmitter Control Code (IR-TCC), which supersedes all former methods of requesting and managing a TCC. We noted significant challenges faced by QIs, particularly due to the need for a U.S. tax identification number under the new system.

As also previously mentioned, the IRS granted a temporary relief and automatically migrated existing FIRE TCCs held by non-U.S. filers to the new IR-TCC system. The 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).

The IRS has previously confirmed that a solution to allow non-U.S. filers to access IR-TCC is under development and has announced earlier this year that the introduction of this solution is anticipated in late 2024.

Please be informed that PQS has been a third-party transmitter of Forms 1042-S and 1099 for a while and has already submitted the forms on behalf of hundreds of QIs. If you are interested in engaging us for this service, please contact us.

QI: Electronic Filing of Forms 1042

Until the 2022 tax year, QIs were required to file their Forms 1042 in paper form. To prove that amounts that were withheld by other withholding agents on line 67 of the form, QIs were required to attach copies C of the Forms 1042-S (or copies of Forms 1099 if applicable) they received from their upstream withholding agents. QIs that were QDDs were also required to attach Schedule Q (Form 1042) to the Form 1042.

For the tax year 2023, the IRS modified the process to require QIs to file the Form 1042 and the respective attachments in electronic form via the so-called Modernized e-Filing Platform (MeF).

Currently, the way the MeF system has been set up, a QI will not have access to it. The reasons for that are manyfold, an important one being that the system is not set up to allow taxpayers to file forms themselves, but instead that the system is used by US-based third-party transmitters to file the forms on behalf of taxpayers.

The 2023 instructions to the Form 1042 specify that the new electronic filing requirements apply to Form 1042 beginning for tax year 2023 (Forms 1042 filed in 2024) and that electronic filing of Form 1042 is required for tax year 2023. On March 18, 2024, the IRS announced a well-anticipated relief from the requirement to electronically file Forms 1042 in calendar years 2024 and 2025. This relief was granted automatically to all non-U.S.-based withholding agents.

There is currently no information about whether the relief will be extended to the calendar year 2026 or whether the IRS will provide a solution for non-U.S. transmitters to be able to file Forms 1042 electronically.

We continue to track the regulatory developments and have developed a solution to file the Form 1042 including its attachments, as a Swiss-based company, electronically on behalf of our clients. We will inform on our solution in the near future.

QI: Tax Treaties Update

The United States has formally notified the Russian Federation to confirm the suspension of Paragraph 4 of Article 1 and Articles 5-21 and 23 of the Convention between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed in Washington on June 17, 1992. This action follows the decree issued by the Russian government suspending certain articles of the double tax treaty between the two nations. The suspension will take effect on August 16, 2024, for both taxes withheld at source (such as taxes on interest and dividend income) and other taxes.

Furthermore, we remind that as of January 1, 2024, the Double Tax Treaty between the United States and the Republic of Hungary is no longer in effect. Consequently, starting from this date, all Hungarian resident account holders are subject to the standard U.S. withholding tax rate of 30 percent.

In addition, we remind that starting January 1, 2024, the Double Tax Treaty between the United States and Chile entered into force. Therefore, the residents of Chile may be entitled to reduced tax rates on U.S. sourced income, if there is documentation supporting treaty benefits on file. The rates are as follows:

Additionally, the application of the Double Tax Treaty between the United Kingdom and the USA will be impacted by the expiration of the rules regarding the taxation on the remittance basis for "residents non-domiciled" (RND) in the United Kingdom. Currently, under the existing rules, UK RND payees were entitled to treaty benefits if they were taxed on the arising basis. The UK RND payees taxed on the remittance basis were only eligible for treaty benefits if the income was "remitted and received" in the UK.

Effective April 6, 2025, the current remittance basis of taxation will be abolished for UK resident non-domiciled individuals. It will be replaced with a new 4-year foreign income and gains (FIG) regime for individuals who become UK tax residents after a period of 10 tax years of non-UK residence. Individuals qualifying for the new regime will not pay taxes on FIG arising in the first four tax years after becoming UK tax residents. For QI purposes, this means that UK payees that benefit from the FIG regime will only be eligible for reduced rates under the UK-USA tax treaty after the initial four-year period passes.

On September 14, 2023, the U.S. Senate Committee on Finance approved the U.S.-Taiwan Expedited Double-Tax Relief Act which will provide substantial benefits to Taiwan residents, similar to those that are provided by Double Tax Treaties. A reduced rate on withholding taxes would apply to interest, dividends, royalties, and certain other comparable payments from U.S. sources (such as dividend equivalent amounts) received by qualified residents of Taiwan. The reduced rates will apply as follows:

The respective provisions will take effect once the bill is passed, although the exact timing is currently unknown.

QI/FATCA: New Form W-9 (Rev. March 2024)

We would like to remind that in March 2024 the IRS published the new revision of the Form W-9. It is important that QIs ensure that only the new form version is being requested by U.S. Person account holders. The important changes are as follows: