The Internal Revenue Service (IRS) on December 30, 2016 released Rev. Proc. 2017-15, which sets forth the final 2017 qualified intermediary (QI) agreement (2017 QI Agreement). The 2017 QI Agreement provides procedures for QIs (including qualified derivatives dealers (QDDs)) and qualified securities lenders (QSLs)) to comply with their US information reporting and withholding obligations.
Historically, the process for applying for QI status has been a paper process that included the completion of Form 14345, Application for Qualified Intermediary, Withholding Foreign Partnership, or Withholding Foreign Trust, and IRS approval. The IRS currently is implementing an electronic QI application (QI Portal) process. In addition to the actual application, the QI portal has a link to a user guide and a frequently asked questions (FAQ) section as well as links to other resources for portal users.
Similar to systems used to manage foreign financial institution (FFI) agreements, the QI Portal provides users a secure system, a convenient method to upload certain supportive documents, the ability to receive electronic notifications regarding changes to status, renewal reminders, and other updates, and reduces the need to contact the IRS directly in many cases.
For more information about the application process and the use of the portal, please see our PwC Tax Insights publication.
The Internal Revenue Service (IRS) and the US Department of the Treasury (Treasury) on January 19, 2017 issued final, temporary, and proposed regulations (the 2017 Section 871(m) Regulations) under Section 871(m) of the Internal Revenue Code (Code). The 2017 Section 871(m) Regulations provide much anticipated guidance in response to comments provided with respect to the existing Section 871(m) regulations as well as additional guidance provided by the IRS in Notice 2016-76 and the new qualified intermediary agreement (2016 QI Agreement) provided in Revenue Procedure 2017-15. The 2017 Section 871(m) Regulations:
- consistently with Notice 2016-76, provide that Section 871(m) will apply to delta-one transactions only for 2017,
- consistently with the 2016 QI Agreement, provide for changes to the treatment of payments made to qualified derivatives dealers (QDDs) and calculation of their tax liability, and
- address a multitude of comments made with respect to the existing Section 871(m) regulations, including providing clarification with respect to the timing of the determination of delta, the ability for withholding agents to choose to withhold on the underlying dividend payment date, and the treatment of parties to Section 871(m) transactions.
Observation: These 2017 Section 871(m) Regulations were issued immediately prior to the memorandum issued by the White House Chief of Staff freezing the publication of new regulations. However, the 2017 Section 871(m) Regulations were subsequently published in the Federal Register on January 24, 2017 and therefore appear to be currently effective. However, future action may change the current status.
For more information, please refer to our PwC Tax Insights publication.
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.
Revenue Procedure 2017-15 – Final QI Agreement
The Internal Revenue Service (IRS) on December 30, 2016 released Rev. Proc. 2017-15, which sets forth the final 2017 qualified intermediary (QI) agreement (2017 QI Agreement). The QI regime permits certain foreign persons acting as intermediaries to simplify their federal tax withholding and information reporting responsibilities (1) under Chapter 3 and Chapter 4 of the Internal Revenue Code (Code) and (2) as a payor under Chapter 61 and Section 3406 of the Code (i.e., Form 1099 reporting and backup withholding).
The 2017 QI Agreement is based on the 2016 Proposed QI Agreement released by the IRS in July 2016, but contains certain changes and points of clarification made in response to stakeholder comments regarding certain provisions of the QI agreement. See our Insight: IRS proposes updated qualified intermediary agreement for more information on the 2016 Proposed QI Agreement. The more notable changes and points of clarification among others include information on:
- QI compliance program including the periodic review and certification of compliance;
- Partnerships or trusts applying the joint account or agency options;
- Entities eligible for QI agreements;
- Documentation requirements relating to account holders;
- Application for QI status, term of the agreement, effective date; and
- Qualified Derivatives Dealers (QDDs)
The 2017 QI Agreement has an effective date of January 1, 2017. QIs with expired agreements must renew before March 31, 2017 to have a new QI agreement with a retroactive effective date of January 1, 2017.
For additional information on these new provisions and clarifications, please see PwC’s Tax Insight on the 2017 QI Agreement.
Revenue Procedure 2017-16 – Final FFI Agreement
The Internal Revenue Service (IRS) on December 30, 2016 released Rev. Proc. 2017-16 which provides guidance to foreign financial institutions (FFIs) that are treated as participating FFIs (PFFIs) and as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA) (Reporting Model 2 FFIs). Rev. Proc. 2017-16 updates the 2014 FFI agreement, which was set forth in Rev. Proc. 2014-38 and expired on December 31, 2016, to provide guidance on new and renewed FFI agreements.
The 2017 FFI agreement, which expires on December 31, 2018, has been revised to provide clarification with respect to certain compliance requirements and to be consistent with various provisions of concurrently released final and temporary Chapter 4 regulations implementing the Foreign Account Tax Compliance Act (FATCA). Modifications contained in the 2017 FFI agreement address:
- the expiration of transitional periods;
- clarification of the requirements for Reporting Model 2 FFIs and branches; and
- new procedures for final certifications of compliance and other obligations upon termination of an FFI agreement.
For additional information on these modifications, please see PwC’s Tax Insight on the 2017 FFI Agreement.
New IRS QI System
On 15 December 2016, the IRS announced the upcoming launch of a new Qualified Intermediary (QI), Withholding Foreign Partnership (WP) and Withholding Foreign Trust (WT) system which will allow these entities to manage their information online.
The QI, WP and WT frequently asked questions will be removed from the FATCA online registration system and will be available in the new system.
For additional information on the updates to the FATCA Online Registration System. please see the FATCA Online Registration user guide.
Further Insights on IRS Notice 2016-76
On 2 December 2016, the Internal Revenue Service (“IRS”) and the U.S. Department of the Treasury issued Notice 2016-76 (Link) providing highly anticipated guidance addressing specific challenges with implementing regulations under Section 871(m) of the Internal Revenue Code. The Notice introduces transitional relief in anticipation of expected amendments to the Section 871(m) regulations and the proposed qualified intermediary (QI) agreement. Portions of the Notice have been discussed in recent public comments by IRS and Treasury officials, but certain provisions may come as a surprise to stakeholders.
For more information, please see PwC’s Tax Insights from Global Information Reporting.
On Friday, 2 December 2016, the IRS published Notice 2016-76 which provides for the phase-in application of the section 871(m) dividend equivalent regulations.
Some quick key highlights:
- Withholding during 2017 will apply to 871(m) transactions that have a delta of one (including combined transactions). All other 871(m) transactions will be subject to withholding beginning in 2018.
- For enforcement purposes during 2017 and 2018, the IRS will consider the extent to which a withholding agent makes a good faith effort to comply
- Taxes withheld for 871(m) during 2017 can be deposited quarterly
- If a withholding agent underwithholds 871(m) tax, the withholding agent is permitted to adjust the underwithholding without penalty as long as such underwithholding is corrected before the following March 15 (i.e., the deadline for Form 1042)
- The combination rule is simplified for 2017 to apply only to over-the-counter transactions that are priced, marketed or sold in connection with each other (listed securities transactions are not required to be combined for 2017)
We will continue to analyze the notice and follow up with you when we have more information.
Switzerland Signs New Joint Declarations on Introduction of AEOI
Switzerland signed new joint declarations on the introduction of the automatic exchange of information (AEOI) with India, Argentina, Mexico, Brazil, and Uruguay. Switzerland and the five new partner states will begin collecting data in 2018 for a first exchange in 2019.
Please note that this timeline differs from Switzerland’s previous AEOI agreements; up until these five new joint declarations, Switzerland has had agreements to collect data in 2017 for first exchanges in 2018.
It is assumed that we will see further agreements in the future with the new information exchange timeline.
Please refer to the links below for the official media releases:
India – https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64612.html
Argentina – https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64554.html
Mexico – https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64585.html
Brazil – https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64584.html
Uruguay – https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64583.html
A complete list of Switzerland’s partner states can be found under the following link: https://www.sif.admin.ch/sif/en/home/themen/internationale-steuerpolitik/automatischer-informationsaustausch.html
Swiss FTA Publishes New Draft of AEOI Guidance Notes
The Swiss Federal Tax Administration (FTA) has published an updated draft of the Swiss AEOI guidance notes. All changes to the August 2016 version have been highlighted in yellow. Currently, the Swiss AEOI guidance notes are only available in German. According to the Swiss FTA, a final version of the guidance notes will be published on 1 January 2017.
Please refer to the link below to access the updated guidance notes draft: https://www.estv.admin.ch/estv/de/home/internationales-steuerrecht/fachinformationen/aia/publikationen/wegleitung.html
On Friday, 21 October 2016, the IRS announced several §871(m) related updates while presenting at the SIFMA Global Tax Reporting Symposium in NYC. We understand from our colleagues that attended the conference that the IRS made the following interesting remarks:
- The effectiveness of §871(m) will be phased in. The regulations will be effective from 1 January 2017 for all delta one contracts and from 1 January 2018 for all other 871(m) transactions. The IRS did not provide any details regarding what qualifies as a delta one contract.
- The IRS commented that the combination rule will be relaxed although they did not provide any details around how much the rule will be relaxed or whether the rule will be relaxed only for certain parties (e.g., brokers, long parties, etc.).
- The IRS did indicate that they have not provided specific rules for the combination rule on purpose as they understand that there may be more than one way to reasonably apply the combination rules.
- The IRS also commented that they are considering changing the timing of withholding from the date of payment to the date of the underlying dividend.
While the phase-in announcement is certainly a welcome relief, there are still a number of open questions remaining regarding the implementation of §871(m).
We can hopefully expect some answers in November when the IRS plans to release a package of regulations and a transition relief notice.
We will continue to keep you updated as we learn more.
The Liechtenstein government plans to extend its CRS network with 32 further countries based on the MCAA. Please find below the link to the document “Bericht und Antrag” (in German) published by the Liechtenstein Government on 13 October 2016. The Liechtenstein parliament has to decide at its next session.
There is a list of the 32 countries included in the report. Besides several financial centres and offshore jurisdictions (e.g. Jersey, Guernsey, Bermuda, Monaco etc.), also large countries (e.g., Argentina, Australia, Chile, China, India, Japan, Canada, Korea, Malaysia, Mexico, New Zealand or South Africa) and the two other EEA countries (Norway and Island) are on the list.
The first automatic exchange of information should already start in 2018 for the fiscal year 2017.
The European Commission has recently launched the so called European TIN Portal, a website which provides information concerning the structure and specificities of TINs of European Member states, if the Member State in question has chosen to publish this information.
Interestingly, one can also find examples of official documents, showing where the TIN is located on the respective document. There is further a search/check tool which enables stakeholders to check the TIN syntax and/or structure.