U.S. Senate Approval of Amendment to the DTA - FATCA Group Requests

FATCA Group Requests

Aside from a few small provisions, Swiss Institutions that are acting as FATCA Reporting Financial Institutions (FFIs) will be particularly interested in the key element of the protocol that introduces the exchange of information in tax matters upon request between the two countries. This change will not only allow the IRS to make information requests for financial accounts from September 23, 2009 onwards, but will especially allow them to make group requests to the Swiss Federal Tax Authority (SFTA) under FATCA as per Article 5 of the FATCA Intergovernmental Agreement.

These “FATCA group requests” concern only accounts reported by Swiss FFIs as part of their aggregated non-consenting and non-participating financial institutions (NPFFI) reporting performed since June 30, 2014. Upon receipt of the request by the IRS, the SFTA will ask Swiss FFIs to report information on these financial accounts. Any requests concerning financial accounts after June 30, 2014 must be submitted to the SFTA in the specific form described in the FATCA Information Delivery User Guide published by the SFTA.

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. The SFTA will forward the request to the FFI in a disclosure order via postal service. After receipt of the disclosure order, the FFI will have ten days to submit the requested information to the SFTA in an encrypted delivery file (in .zip-format, encrypted AES256-Bit) either in a USB data medium via courier or via the Filetransfer Service. The encrypted delivery file will contain unencrypted information package(s) in a .zip-format. For each reportable account, a separate information package must be generated, which must contain the following three elements:

• One FATCA-XML-file reporting information on the reportable financial account.

• One SEI-XML-file reporting information on the reportable financial account, such as account holder, beneficial owner, and, if applicable, the strongest U.S. indicium that led to the aggregate FATCA reporting of the non-consenting client.

• One documentation file in .pdf-format with documentary evidence on the reportable financial account, such as a document showing the account balance on June 30, 2014 and account opening forms. Note that the PDF must be in a PDF/A-format which requires the file to be generated in a manner that preserves its visual appearance over time.

Beside the delivery file, the SFTA expect also a form “Credentials Exchange” from the FFI, where the name of the delivery file, the SHA-1 Hash Value of said file and the encryption password(s) must be provided.

After validation of the files, the SFTA will not explicitly confirm the receipt of a delivery file, but it might reject the delivery and send an error report to the FFI via postal service, fax or email. In that case, the FFI must re-submit the initial information package correcting the error. An updated package can be submitted after the initial package was accepted.

PQS will be able to fully support FFIs with preparing the reportable data in the required format by the SFTA.

PQS Comments:

• It is unclear at the moment when these group requests will be made but due to the very short delivery period for the submission of the packages, we strongly recommend Swiss FFIs to start preparing the data as soon as possible. FFIs should start by evaluating how many accounts have been reported in aggregated form during the last five years and should start compiling the data used to generate these reportings. This will allow them to evaluate the scope of the project.

• Note that the requests not only concern accounts reported as non-consenting accounts with U.S. indicia or non-consenting U.S. accounts, but also accounts held by Non-Participating FFIs reported for years 2015 and 2016. We are aware that many Swiss FFIs reported many accounts as NPFFI only because the accounts did not have proper documentation on file, and not because of U.S. indicia. We expect at the moment that the IRS will not make a distinction, which is why FFIs should prepare to report all accounts reported in the aggregated reporting.

• FFIs should expect that generating the SFTA information packages may be a big strain on resources, especially if a lot of accounts have been reported. Generating a FATCA XML should be the smallest challenge, as many seasoned FFIs are able to generate these. Generating the SEI-XML and especially the PDF/As however may prove to be very burdensome due to the limited ways to automate the process of generating these files.

Should you seek assistance in setting up a process or generating the information packages, please do not to hesitate to contact us.