Final QI agreement includes updated QDD provisions

The Internal Revenue Service (IRS) on December 30, 2016 issued Rev. Proc. 2017-15 setting forth the final qualified intermediary (QI) withholding agreement (2017 QI Agreement). Non-US entities and certain foreign branches of US entities may enter into the 2017 QI Agreement with the IRS to simplify their obligations as withholding agents under Chapters 3 and 4 (Foreign Account Tax Compliance Act or FATCA) of the Internal Revenue Code (Code) and as payers under Chapter 61 and Section 3406 of the Code for amounts paid to their account holders. The 2017 QI Agreement has an effective date of January 1, 2017.

The 2017 QI Agreement allows certain non-US derivatives dealers and securities lenders that are QIs to enter into an agreement with the IRS to act as qualified derivative dealers (QDDs) with respect to transactions that give rise to payments with respect to Code Section 871(m) transactions and substitute interest. The QDD regime addresses the problem of cascading or over-withholding on certain derivatives and securities lending transactions by providing that no withholding tax is required on certain payments made to a QDD when it is acting as a principal.

Rev. Proc. 2017-15 follows Notice 2016-42, which was issued in July 2016 and set forth a proposed QI agreement (2016 Proposed QI Agreement) that contained provisions setting out terms and requirements for QDDs. The IRS requested and received many stakeholder comments on the 2016 Proposed QI Agreement. The 2017 QI Agreement (including the QDD provisions) responds to certain of those comments, and implements the guidance set forth in Notice 2016-76 which delayed many of the provisions related to Code Section 871(m).

For more information about the changes and provisions relevant for QDDs, please see our PwC Tax Insights publication.

Published by

Christoph Schärer

Christoph Schärer
PwC
Birchstrasse 160
Postfach, 8050 Zurich
+41 58 792 42 82

Christoph is a member of the PwC international FATCA working group and co-leads the Swiss FATCA initiative. He has considerable FATCA tax project experience with a range of investment, cantonal, regional, retail and private banks, as well as with life insurance companies and banking service providers.