24.01.2023

20'

Reporting Reminder 2023

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, PQ Solutions LLC ("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 2021, from tax year 2022 on, Swiss financial institutions must also report all account holders resident in countries having an AEOI Agreement in force since January 1, 2022. A list of these states is available on the SFTA website. The following countries are new for the tax year 2022 reporting:

Of these states and territories, Oman is declared a "temporary non-reciprocal jurisdiction". This means that it will initially provide information on financial accounts but will not receive such information until it meets all the requirements of the CRS. Reporting Swiss financial institutions must collect the relevant data from the time of activation of the CRS (January 1, 2022) for these states and territories, and forward them to the SFTA within the specified period, however, the SFTA will only forward this data to the partner states once they fulfil the conditions for a reciprocal data exchange.

In addition, the Swiss Federal Council decided to suspend the data transmission to Russia. However, the obligations of Swiss Reporting FIs towards the SFTA remain unaffected by this decision: Notwithstanding the suspension, the Reporting FIs 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, 2023 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 2022, there have been no changes to the FATCA Reporting standards applicable to Swiss FFIs.

Important Reminders in Brief

Reporting Model 2 FFIs reporting on non-consenting U.S. accounts
For preexisting accounts that are non-consenting U.S. accounts reported by Reporting Model 2 FFIs, the following pooled reporting categories should be used:

In cases where a newly opened individual account has a change in circumstances that causes the original self-certification to be incorrect or unreliable, and where the Reporting Model 2 FFI is unable to obtain a valid self-certification establishing whether the account holder is a U.S. citizen or resident, the pooled reporting category "recalcitrant account holders with U.S. indicia" should be used.

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 Form 8966 to report non-consenting accounts.

It is the responsibility of the FFI to perform the 8966 FATCA reporting, and 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", "Important Updates and Dates for the Implementation of the Regulatory Requirements for 2020" and "Important Update on Swiss FFIs" or on the website "Administrative assistance to FATCA" of the SFTA.

We strongly recommend affected Swiss financial institutions to start gathering 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

Important Changes in Brief

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

New Income Code 57
The new income code 57 shall be used to report on the transfer of interests in publicly traded partnerships ("PTP") and distributions subject to Section 1446(f) made by the PTP. Please note that income code 58 has only been introduced with the 2023 1042-S instructions and should not be used for tax year 2022.

New Chapter 3 Status Code 38 "Publicly Traded Partnership"
The new chapter 3 status code 38 shall 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.

New LOB Code
The new 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.

Important Reminders in Brief

Request for extension of time to forward recipient copies
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, 2023. 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 in our newsletter "Information for Users of the FIRE System", 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.

In our newsletter "FIRE System Update", 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. From this date on, QIs without a valid account in IR-TCC will lose their TCC and will not be able to file their 1042-S reporting electronically anymore.

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, 2023.

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.

2022 Form 1042

Important Changes in Brief 

As of the date of this information, for the tax year 2022, the new Form 1042 instructions were not published yet. If there are significant changes to report once the new instructions are published, we will send out a separate information.

Please note that the IRS is updating the Modernized eFile (MeF) system to allow the electronic submission of the Form 1042 and its supplements. We will inform on this topic at a later stage and recommend filing the Form 1042 in paper for tax year 2022.

Important Reminders in Brief

Dating of Form 1042
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.

Name changes
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.

Schedule Q (Form 1042)
If a QI or any its branch is a Qualified Derivatives Dealer (QDD), the taxpayer must attach to 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.

Form 1120-F and Schedule Q (Form 1120-F)
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.

Rounding
Please be reminded that QIs are newly 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.

Potential Section 871(m) transactions
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 reporting with the IRS by March 15, 2023. 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

There is the option to request an automatic extension 6-month extension of time to file Form 1042 by using Form 7004. 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

Change of Submission Address
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

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 FTE and NQI 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.

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 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.