Recent IRS comments on FATCA, QI and 871(m) and other FATCA developments

Recent Comments from the IRS on FATCA, QI and 871(m)

The IRS has made several interesting comments while speaking at conferences over the last couple of weeks.

  • FATCA – according to the IRS, we can expect a revised version of the form W-8BEN-E sometime late this year or early next year.
  • FATCA – according to the IRS, the process for registering sponsored entities will kick off late this summer and will include options for adding sponsored entities either individually or via a bulk upload.
  • FATCA – according to the IRS, when a client provides a reasonable explanation for his/her loss of citizenship (given in lieu of a Certificate of Loss of Nationality), such a reasonable explanation should be fact based.
  • Qualified Intermediary (QI) – according to the IRS, there are currently no plans to issue a revised version of the current QI agreement.  Instead, the IRS will begin working on the 2017 version of the agreement and may issue a notice in the meantime to address a few issues that were not fully covered in the current agreement.
  • Dividend Equivalent Payments (871(m)) – the IRS is planning to issue the final regulations on withholding on dividend equivalent payments soon.  These regulations will retain the delta standard but will contain significant changes to reflect the feedback received on the proposed rules.  The regulations will also push back the effective date of the regulations to apply to contracts and payments made after 1 January 2017.

Other IRS FATCA Updates

Updated IDES Information

The IRS has recently updated several of the IDES web pages including the IDES Resources, the IDES Technical FAQs and the FATCA XML Schema Recommendations for DocRefId web pages.

Upcoming IDES Testing Period

The FATCA IDES opens on Monday, June 1 2015 for testing and will be available until 12:00 EST on Monday, June 8 2015.  All users that have completed their IDES enrollment by Thursday, May 28 2015 will be able to access the test session.

Recent Developments in IGA Countries


On 20 April 2015, the Federal Public Department of Finance released the Belgian FATCA Guidance Notes in draft format.

Additional information about the implementation of FATCA in Belgium can be found on the Federal Public Department of Finance’s website.

British Virgin Islands

Reporting British Virgin Islands financial institutions that have not already done so need to register with the British Virgin Islands Financial Account Reporting System by 1 June 2015.  Nil reports are not required to be filed but if a financial institution would like to do so, such a financial institution would need to register to be able to do so.  For more information, please see the recent press release.

Cayman Islands

On 20 May 2015, the Cayman Department for International Tax Cooperation issued another update concerning the notification and reporting deadlines for Cayman reporting financial institutions.  Accordingly, notifications may now be submitted on or before Friday, 29 May 2015 and returns may be reported on or before Friday, 26 June 2015, without attracting adverse consequences or enforcement measures.


On 27 April 2015, the French tax authorities released a revised version (1.4) of the IT requirements for FATCA reporting.


The German tax authority (Bundeszentralamt für Steuern) frequently publishes information alerts in the German language for financial institutions and service providers. The information alerts are in the form of non-binding guidance but should be monitored by financial institutions operating in Germany.

In April, the German tax authority released an information alert addressing the publication of a communication handbook. This communication handbook gives detailed guidance on how to register as well as how data should be transmitted to the German tax authority via the “ELMA” procedure. Moreover, the most recent information alert offers the possibility of performing a testing procedure for reporting purposes.


On 29 April 2015, the United States and Kuwait signed a Model 1B Intergovernmental Agreement (IGA) to improve international tax compliance with respect to the Foreign Account Tax Compliance Act and to combat international tax evasion.


On 19 May 2015, the Inland Revenue Board of Malaysia (IRBM) posted an update stating that the date for submission of information in accordance with the draft FATCA guidance notes to IRBM has been postponed from 30 June 2015 as the Malaysia-US IGA is still being finalised.  A new date will be announced in a future posting.


The Mauritius Revenue Authority (“MRA”) has announced that Mauritius-based financial institutions registered with the IRS for FATCA reporting have to report information in respect of the year 2014 to the MRA by 31st July 2015 for onward transmission to the US IRS.


The Mexico-US intergovernmental agreement to implement FATCA requires financial institutions which are located or resident in Mexico such as banks, asset managers, insurance businesses or fiduciaries (among others) to report financial information on certain accounts owned directly or indirectly by U.S. persons, to the Mexican Tax Authorities (Servicio de Administración Tributaria or SAT).

The filing deadline for the first of these reports was originally set at 31 May 2015, however, the Mexican tax authorities have this week announced on their website a revised deadline of 15 September 2015. This will shortly be published in the Official Gazette.

The first FATCA reports must now be submitted by 15 September 2015 and will include information such as:
· Name, address and tax reference number of the client
· Average monthly account balance or value and account number

Both entities and individuals will need to be reported. So, if the financial institution has any clients who are a) US individuals; b) US entities; or c) non-US entities controlled by US individuals or US entities (“US clients”), such financial institutions will need to be ready to report by 15 September 2015.


The deadline for reporting to the Dutch authorities is 1 June 2015.  By then, financial institutions in the Netherlands need to provide a specific set of data to the Dutch tax authorities (DTA) based on the FATCA IGA concluded between the Netherlands and the US.  For more information about how PwC Netherlands can assist you with this reporting, please see the attached flyer.


On 4 May 2015, President Bronislaw Komorowski signed a bill ratifying the agreement with the United States concerning enforcement of the Foreign Account Tax Compliance Act (FATCA), which provides a basis for the exchange of information about income and accounts of tax residents between the United States and Poland. The implementation process has not been finalised as the bill implementing the IGA (which is different from the bill on ratification) is still in the legislative process.

United Kingdom

On 15 April 2015, the UK’s International Tax Compliance Regulations 2015 came into effect.  These supersede the previous FATCA regulations that came into force on 20 June 2014.  For more information regarding the changes, please see our recent PwC UK News Release.

The UK has also published an updated FATCA Schema, updated guidance regarding registration and reporting, and guidance around the recent changes for the classification of holding companies and treasury companies.


If you have any questions to the recent comments, please feel free to contact me.

“Gilded Age” 2.0 – Billionaires Study 2015

billionairesBillionaires: Master architects of great wealth and lasting legacies

The majority of today’s self-made billionaires have built their wealth – totalling over USD 3.6 trillion – within the last two decades. Within Europe about half of all billionaires come from the consumer industry. The new UBS and PwC “Billionaires” study also shows that Asia is on the road to becoming the billionaire hub of the future.

Find out more about the study here.

The Liechtenstein common-benefit foundation

A mainstay of the Principality’s financial centre strategy Liechtenstein_EN


People are increasingly adopting sustainability as a basis for their actions and investments, and the number of charitable foundations and organisations is growing all around the world – nowhere less than in the Principality of Liechtenstein. In 2008, Liechtenstein completely revised its foundation law, an integral component of the Principality’s financial centre strategy. Since then, many things have changed.

Read more here.

FRTB Case Study: Overcapitalisation Due to Data Insufficiencies

Under the upcoming regulation discussed in a series of consultative papers titled ”Fundamental review of the trading book” the methodology for calculating capital requirements is going to change significantly. The required capital will be driven by the risk factors the trading book is exposed to. One interesting aspect of this new method is that risk factors are associated with certain buckets and diversification effects between those buckets are taken into account. However, in cases where it is not possible to allocate a position to a bucket due to insufficient data, these positions are mapped to the so-called residual bucket, to which the maximum risk weight is assigned and no diversification effects are recognised.

Here we are going to look at a sample equity portfolio to learn about how the data quality influences the amount of required capital. Let us start with a Swiss market portfolio whose asset allocation is based on the SMI. The required capital due to equity risk for this sample is 18.7% of the portfolio value. But we additionally determined the degree of overcapitalisation, i.e. the percentage increase of required capital, for all scenarios of insufficient data. The results can be seen in the histogram below.

Histogram of overcapitalisation due to data insufficiency for an SMI stock portfolio


Note that most scenarios yield an overcapitalisation of more than 50%. In fact, assuming data error scenarios are uniformly distributed, the overcapitalisation will be above 50% at a confidence level of 99%! And the expected value of overcapitalisation is 167%, i.e., insufficient data can be expected to more than double the capital requirements in this sample.

Of course, one can say that it is more reasonable to expect that single data errors are quite common, while it is rather improbable that they cluster. So instead of taking the data error scenarios to be uniformly distributed, we should assume a exponential decay with the number of data errors in the scenario. The decay rate is then a measure of data quality directly associated with the number of expected data errors. The graphic below illustrates how a decrease in data quality yields an increase in required capital for our sample SMI portfolio.

Expected overcapitalisation by data quality for SMI portfolio


It is interesting to see that a low data error ratio of 12.5%, that is 2.5 expected data errors for our sample portfolio, already doubles the required capital.

OK, let us look at a bigger sample equity portfolio based on the EuroStoxx 50. Apart from 15% required capital for FX risks (assuming the reporting currency is CHF), the capital charge for equity risk is 19.5% of the portfolio value. Since the portfolio contains more than twice as many assets, it is tough to consider every data error scenario. But we can specify the data quality (10% expected ratio of data errors) and perform a Monte Carlo simulation. Below the results:

Overcapitalisation of a portfolio based on the EuroStoxx allocation due to data insufficencies assuming an expected ratio of data errors of 10%.


The expected overcapitalisation for this sample portfolio and data quality is 48% with a standard deviation of 20%.

What do we get from this? Well, due to the structure of the new approach to capital requirements where assets that cannot be assigned to a specific bucket are mapped to the residual bucket, required capital can substantially increase due to insufficient data quality. This is mainly due to the fact that in the residual bucket no diversification effects are taken into account. Additionally, the risk weight in the residual bucket coincides with maximum risk weight of the standard buckets. Since all companies represented in the SMI are located in an advanced economy, their risk weights are usually low. Being forced to map them, the residual bucket thus increases the assumed stress significantly. It is therefore important to check and update your data infrastructure early on to avoid unnecessarily bound capital.

Any questions? Do not hesitate to contact us and check out your previous blog entry.

Capital Markets 2020: Will it change for good?

We believe that capital markets in 2020 will look very different than they do today. Based on Capital marketsfeedback from clients, many have gloomily predicted a shrinking capital markets landscape, overregulation and the fall of traditionally powerful financial centres such as London and New York. However, we have a different vision for 2020 – one of a new equilibrium. This new equilibrium consists of a traditional financial axis of power further solidifying their positions at the top and the world seeking stability and predictability in the context of riskier and more uncertain geopolitical situations. In addition, much of the landscape where financial institutions operate will change significantly. This change will come from economic and government policies, innovation, operational restructuring, technology, from smarter and more demanding clients, companies harnessing powerful data and from continued growth of the shadow banking system.

Read more here.

FATCA Updates – April 2015

IRS IDES Updates

The IRS has recently updated a number of the websites and resources for the FATCA IDES including the IDES User Guide, which includes new enhancements for reporting and other instructions, and the FAQs to update certain responses and add others.

The IRS has also published examples to explain how to create an IDES data packet and decrypt a notification. The three examples on data preparation for Java, .NET, and OpenSSL can be found on GitHub.

IGA Updates

Cayman Islands

The Cayman Islands Department for International Tax Cooperation (DITC), on April 16, 2015, released Version 1.2a of the Cayman Island Automatic Exchange of Information Portal User Guide.  The User Guide provides clarification on the notification process by sponsoring Cayman financial institutions (Sponsoring FIs) with respect to sponsored Cayman FIs (Sponsored FIs) and filing a nil return (FATCA Reports). The three critical clarifications in the updated User Guide are: (1) Sponsored FIs do not have to provide a notification on the AEOI Portal; (2) the Sponsoring FI must provide notification (regardless of whether reporting is required) with its own global intermediary identification number (GIIN); and (3) filing a nil return is not mandatory.

For more information, please see our recently published PwC Tax Insight.


On 30 March 2015, the Luxembourg parliament published the draft law (in French) and released it for discussion on the 27 March 2015 by the minister of finance. This long-awaited draft law aims at adopting the IGA signed one year before on 28 March 2014 and under the terms of which FATCA will be applied in Luxembourg. In addition to the IGA itself, some new obligations and sanctions are developed in the law, with the obligation to inform the reported client prior to reporting likely being the most important.

For more information, please see our recently published PwC Flash News.


The filing deadline for Reporting Malta Financial Institutions has been extended to 15 June 2015.  Reporting Malta Financial Institutions will not suffer any applicable penalties provided that the information that is required to be reported for FATCA purposes is submitted to the commissioner not later than 15 June, 2015.

The commissioner further informs that this exception will apply for 2015 only.

More information can be found on the Inland Revenue Authority of Malta’s Website.



The Seychelles Revenue Commission has issued a circular on information that financial institutions are required to report under the U.S. Foreign Account Tax Compliance Act agreement.


The filing deadline for Reporting SGFIs to submit their first FATCA reporting data has been extended to 31 July 2015 (from 31 May 2015). This extension was provided to allow sufficient time for FIs to obtain public certificates for enrolling into the IDES, to prepare the reporting packet in accordance with the IRS’s requirements, and to conduct IDES testing, if desired, prior to the submission of account data.

More information can be found on the Inland Revenue Authority of Singapore’s Website


As published in the Spanish Official Bulletin on 12 March, an Order (in Spanish) was included to extend the deadline for FATCA reporting under the IGA until 31 May 2015.


On 3 April 2015, U.S. Ambassador to Uzbekistan Pamela Spratlen and Chairman of the State Tax Committee of Uzbekistan, Botir Parpiyev, signed the Intergovernmental Agreement (IGA) to improve International Tax Compliance with respect to the Foreign Account Tax Compliance Act.

Fundamental Review of the Trading Book

It is getting serious…

Fundamental changes are coming up for the banking industry. In course of its aim to increase the stability of the financial system, the Basel Committee is going to make substantial changes to the way required capital for market risks is calculated – and after the recently published consultative paper “Fundamental Review of the Trading Book: Open Issues”, it becomes quite clear what form these changes will take.

Not just about the trading book

The Basel Committee aims to specify the boundary between the trading and the banking book more clearly and unambiguously. While still keeping the intention to trade, hedge and profit from short-term price fluctuations as a guiding principle, the Committee gives strict rules and assumptions about which book certain positions must be allocated. In particular, positions which nowadays can safely be held in the banking book might be switched to the trading book in the new setup. Even in cases where no trading book is needed currently, under the new guidelines the need for a trading book might arise.

The new standard approach – taking sensitivities into account

While the Basel Committee originally suggested calculating required capital based on future cash-flows, it now favors a sensitivity-based approach (SBA) due to feasibility concerns from the financial industry. This new approach directly uses risk measures, the sensitivities, to compute the required capital, therefore, the required capital is directly connected to the risk of the portfolio. However, this also poses challenges regarding data availability and quality as all the sensitivities and fundamental information of the instrument for correct bucketing must be available. In particular, missing fundamental data could lead to instruments being mapped to the residual bucket, which would result in a significant increase in the required capital.

Though challenging, the new approach has the potential to increase the stability not only of the financial system but to secure each individual bank. Have a look at the attached flyer to get more detailed information or contact us directly to discuss the upcoming challenges for your business.