IRS Announcements regarding QI Certifications

On 22 February 2018, the Internal Revenue Service (“IRS”) announced that the QI/WP/WT application and account management system will be open to accept QI/WP/WT certifications beginning in early April.

Additionally, the IRS announced extended deadlines for the certifications as follows:

  • For QIs that choose 2015 or 2016 for the periodic review, the IRS will permit an extension of the original deadline from 1 July 2018 to 1 September 2018
  • For QIs that qualify for a waiver from the periodic review, the IRS will permit an extension of the original deadline from 1 July 2018 to 1 September 2018
  • For QIs that choose 2017 for the periodic review, the IRS will permit an extension of the original deadline from 31 December 2018 to 1 March 2019

All QIs/WPs/WTs will receive an announcement on their message board that the QI/WP/WT account management system will open in early April.

FAQs are available on the IRS website to support users in managing the system.

Contact

Melanie Taosuwan
+41 58 792 4249
melanie.taosuwan@ch.pwc.com

U.S. tax reform includes important information reporting and withholding changes

The 2017 tax reform and reconciliation act (the Act), enacted on December 22, 2017, makes important changes to information reporting and withholding tax rules, including:

  • A change in the backup withholding rate from 28% to 24%;
  • A new federal tax withholding requirement relating to certain transfers of partnership interests;
  • New reporting requirements relating to:
    • the sale of certain life insurance contracts, and
    • the receipt of fines, penalties, and other amounts from certain taxpayers; and
  • Changes to various non-payroll withholding tax rates that are tied to individual and corporate income tax rates.

Observations: Taxpayers may need to implement changes immediately to their policies and procedures to conform to the new rules. Also, taxpayers reorganizing or restructuring in light of US tax reform should consider the impact the tax reform changes have on their tax withholding and reporting profile. Restructuring could cause changes in the source of income being paid or the status of a taxpayer (e.g., from non-US payor to US payor, or vice versa). Taxpayers should determine whether they are subject to new or additional tax withholding or information reporting obligations as a result of restructuring efforts due to US tax reform.

For more information on these updates, please see our recently published Tax Insight.

871(m) Updates – Fall 2017

Draft 1120-F Instructions include QDD Tax Liability Information

For 2017, Form 1120-F is the form to be used by Qualified Derivatives Dealers (“QDD”) for purposes of reporting their QDD Tax Liability.  According to the draft instructions for the Form 1120-F published by the IRS on 10 October 2017, the QDD tax liability will be reported by attaching a statement to the Form 1120-F.

This statement is required to contain a table with columns for the gross amount, the rate of tax and the tax liability and must contain the following rows:

  • total section 871(m) amount;
  • total dividends received in the QDD’s equity derivatives dealer capacity;
  • total QDD tax liability pursuant to section 3.09(A) of the Qualified Intermediary (“QI”) Agreement (Revenue Procedure 2017-15);
  • total QDD tax liability pursuant to section 3.09(B) of the QI agreement; and
  • total QDD tax liability pursuant to section 3.09(C) of the QI agreement.

Second Report to the President on Executive Order 13789

On 2 October 2017, Secretary of the Treasury, Steven T. Mnuchin, published his second report to the President on identifying and reducing tax regulatory burdens.  The content of the report is focused on providing recommended actions to eliminate or mitigate the burdens imposed on taxpayers by eight regulations that the Department of the Treasury identified for review under Executive Order 13789.

Although the regulations under Section 871(m) have not been previously identified for review, the Secretary notes within this report that the Treasury is continuing to analyze all recently issued significant regulations and is considering possible reforms of several recent regulations not identified in the first report.  Specifically, the Secretary mentions that the regulations published under Section 871(m) as well as the regulations published under the Foreign Account Tax Compliance Act are included within this review.

We will continue to keep you updated as we learn more on these topics.

Should you have any further questions, please contact one of the following persons:

Christoph Schaerer
+41 58 792 4282
christoph.shaerer@ch.pwc.com

Melanie Taosuwan
+41 58 792 4249
melanie.taosuwan@ch.pwc.com

Thomas Plank
+41 58 792 4584
thomas.plank@ch.pwc.com

IRS defers effective date for section 871(m) regulations

On 4 August 2017, the Internal Revenue Service (IRS) and the US Department of the Treasury published Notice 2017-42 which defers the effective date for portions of the regulations under Section 871(m) of the Internal Revenue Code for another year. The Notice extends the relief provisions currently in effect under Notice 2016-76, Rev. Proc. 2017-15, and the 2017 Section 871(m) regulations. The Notice provides:

  • that transactions in-scope based on their delta through the end of 2018 are limited to ‘delta one’ transactions; as a result, transactions with a delta less than 1 but greater that .8 (delta .80 transactions) will not be in scope until 1 January 2019,
  • that the simplified combination rule will continue to apply for withholding agents until 31 December 2018,
  • for the deferral of withholding on actual and deemed dividends paid to qualified derivatives dealers (QDDs) until 1 January 2019 and
  • for the extension of the good faith periods for the implementation of Section 871(m).

PwC Observation: The deferral provided by Notice 2017-42 has been anticipated by market participants who have been struggling to implement the guidance issued at the end of 2016 and the beginning of 2017. In particular, the changes to the Qualified Intermediary (QI) Agreement applicable to QDDs have raised significant questions for issuers of financial products linked to US equities in the international financial markets.

For more information, please refer to our

PwC Tax Insights Publication

 

Should you have any further questions, please contact one of the following persons:

Christoph Schaerer
+41 58 792 4282
christoph.shaerer@ch.pwc.com

Melanie Taosuwan
+41 58 792 4249
melanie.taosuwan@ch.pwc.com

Thomas Plank
+41 58 792 4584
thomas.plank@ch.pwc.com