Regulatory requirements under QI and FATCA

QI

Switzerland: New Attachment to the QI Agreement (Rev. July 2020)

On July 23, 2020, a revised Attachment for Switzerland (Rev. July 2020) was published. The Attachment was revised to incorporate the latest revisions of the AML/KYC-legislation in Switzerland and includes an important addition that many Swiss QIs will like to hear.

Except for changes in reference to the relevant legislation, the most significant change in the new Attachment for Switzerland is that Swiss QIs are newly allowed to rely on certificates of residence issued by authorized government bodies of the country in which the recipient of the U.S. reportable payment claims to be a resident. This also includes inter alia a "Wohnsitzbestätigung/attestation de residence/certificato di domicilio" issued by Swiss authorities. 

QIs may rely on such certificates of residence only if they are used as additional documentary evidence to support a claim for treaty benefits. To be correctly documented with documentary evidence for QI purposes, beneficial owners are still required to provide either a passport, a national identity card, a residency permit (in case of a non-citizen) or a driver’s license with photograph.

QDDs: Waiver and Periodic Review

In their updated FAQ, the IRS provided clarifications regarding periodic reviews and QI certifications performed by QIs that act Qualified Derivatives Dealers (QDDs). A QI that is a QDD must include both its QDD and its non-QDD activities in its periodic certifications. However, for QDD activities performed in the calendar years before 2023, the QDD can fulfil the certification requirements by taking into account whether it made a good faith effort to comply with the section 871(m) regulations. In order to be able to do so, the QDD is required to retain information supporting such good faith effort. QDDs should therefore expect the IRS to request documentation on how they made a good faith effort to comply with the QDD requirements.

In addition, the IRS permitted QIs that are QDDs and that have their certification period ending in any calendar year before 2023 to apply for a waiver of the periodic review if they otherwise meet the requirements to be eligible for a waiver with respect to their QI activities that are not QDD activities. To apply for a waiver, QIs should complete Parts I, II, and III (Waiver of Periodic Review) of the Certification of Effective Internal Controls taking into account both their QDD and non-QDD activities (except for Part III, which only takes into account non-QDD activities) and, in Part A check the box titled "QI is an FFI that is not also acting as a QDD".

Update of Form 4419 

To be able to file the Forms 1042-S electronically, since last year, QIs must file an electronic (fill-in) Form 4419 to apply for a Transmitter Control Code (TCC). For QIs that already have a TCC we would like to remind QIs that a revised paper Form 4419 must be submitted if the following information in a previously approved Form 4419 was subject to change:

• Legal name

• Address

• Person to contact and contact information in Block 5

Please be reminded that in Block 5 the IRS requires to provide the contact information of the person to contact as indicated in the "T" record of the electronic 1042-S. Therefore, QIs are required to provide a revised paper Form 4419 only if the person indicated in the "T" record changes.

FATCA

Update of the FATCA Registration System: New Features for Sponsoring Entities

The FATCA Registration System has been updated by the IRS. Sponsoring entities must now "cancel" the registration of sponsored entities that need to be removed instead of deleting them.

Sponsoring entities must also include these cancelled sponsored entities in their Certification of Preexisting Accounts (COPA) and Periodic Certification of a Sponsoring Entity of Sponsored FFIs and Sponsored Direct Reporting NFFEs.

The IRS updated its Publication 5118 - FATCA Online Registration User Guide to reflect these changes.

Definition of a U.S.-Person for FATCA purposes

Starting January 1, 2020, individuals with dual tax residency in the USA and in another country are treated as non-U.S. persons for U.S. tax purposes for the portion of the tax year when they had such dual status, if they fulfil the conditions to be treated as nonresident aliens.

A dual resident is treated as nonresident alien, if 

• They are tax resident both in the USA and in the country other than the USA, and

• They claim treaty benefits to reduce their U.S. income tax liability

For FFIs to confirm that the dual resident fulfils these conditions, a Form W-8BEN provided by the account holder is sufficient. The FFI may also, on its own discretion, obtain additional documentation confirming the non-U.S. status of such account holder (e.g. a copy of Form 1040-NR).

Furthermore, for tax year 2020, the IRS amended the Medical Condition Exemption to the Substantial Presence Test (SPT) to provide relief to individuals that are not able to leave the USA due to the COVID-19 emergency travel disruptions. Nonresident individuals who would not have spent enough time in the USA to be considered resident aliens if not for the COVID-19 travel interruption can apply the SPT medical condition exemption to exclude up to 60 consecutive days. An account holder making use of such exemption must provide the withholding agent/FFI with information demonstrating that they have not met the SPT (e.g. a written statement which shows the number of days the account holder was present in the United States during the three-year period that includes the current year and the number of days to be excluded under the medical condition exemption).