FATCA Certification: Extension of Deadline and Draft Certification Texts Published

On 16 March 2018, the Internal Revenue Service (“IRS”) published the FATCA Responsible Officer certification texts on its website (in draft form). Additionally, the IRS extended the deadline for the FATCA Responsible Officer certification. Please refer to the following link for access to the draft FATCA certification texts as well as the notice regarding the deadline extension.

The IRS also announced that the IRS’s FATCA Certification Portal (“IRS Portal”) will not be available until July 2018 (at the earliest). Based on the newly provided information, we understand that the IRS will grant FATCA Responsible Officers an extension of at least three months (as per the activation date of the IRS Portal) for the FATCA Certification. This means that the FATCA Certification deadline will be extended from 1 July 2018 to 1 October 2018 (assuming the IRS Portal is activated on 1 July 2018).

Furthermore, the IRS published different draft certifications texts for the various Financial Institution categories (e.g., Reporting Model II FFI, Local FFI, etc.). An initial review of the draft certification texts indicates no unexpected surprises in terms of the content or scope of the FATCA Certification.

As we continue to analyze the certification texts, we will actively post any new and relevant information. In the meantime, please feel free to contact us in case of any questions.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

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

OECD Issues Model for Mandatory Disclosure of CRS Avoidance Schemes

On 9 March 2018, the Organisation for Economic Co-operation and Development (“OECD”) issued new model disclosure rules that require the mandatory disclosure of OECD Common Reporting Standard (“CRS”) avoidance schemes. The model will require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the CRS. Additionally, under the model, reporting of structures that hide beneficial owners of offshore assets, companies and trusts is required. The OECD also hopes to deter the design, marketing and use of these arrangements and schemes and bolster the overall integrity of the CRS.

The document issued by the OECD provides background information regarding the CRS anti-avoidance topic, includes text of the model itself, as well as a commentary to explain the model. As a next step, the model disclosure rules will be submitted to the G7 presidency in an effort to adopt a wider strategy of monitoring and acting upon market tendencies to avoid CRS reporting and hide assets offshore. Within the scope of the CRS anti-avoidance work, the OECD is also addressing cases of abuse of golden visas and other schemes used to circumvent CRS reporting.

Please refer to the link for access to the OECD’s new model disclosure rules.

Additionally, please refer to the link for access to the OECD’s accompanying FAQs.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

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

OECD Releases New CRS Anti-Avoidance Consultation Document

On 19 February 2018, the Organisation for Economic Co-operation and Development (“OECD”) released a consultation document on the misuse of residence by investment schemes to circumvent the OECD Common Reporting Standard (“CRS”). As an increasing number of jurisdictions are offering so-called “residence by investment” (“RBI”) or “citizenship by investment” (“CBI”) schemes, the OECD is seeking public input to obtain further evidence on the misuse of such RBI/CBI schemes.

The OECD’s consultation document aims to:

  1. assess how RBI/CBI schemes are used to circumvent the CRS;
  2. identify the types of schemes that present a high risk of abuse;
  3. remind stakeholders of the importance of correctly applying relevant CRS due diligence procedures to aid in avoiding such abuse; and,
  4. explain the next steps the OECD plans to undertake to further address this issue.

The OECD will take public input into account in order to determine how to best proceed with the RBI/CBI schemes issue. Parties interested in providing input have until 19 March 2018 to email their comments to the OECD. All comments must be sent to CRS.Consultation@oecd.org and addressed to the International Co-operation and Tax Administration Division.

Please refer to the following link for access to the OECD’s consultation document.

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.

CRS Updates – December 2017

OECD Seeking Public Comments Regarding Mandatory Disclosure Model

On 11 December 2017, the Organisation for Economic Co-operation and Development (“OECD”) published a press release containing a mandatory disclosure consultation document which is open for comments from interested parties and stakeholders until 15 January 2018. Through the consultation document, the OECD is seeking input for a model requiring mandatory disclosure rules, and which ultimately intends to target promoters and service providers with a material involvement in the design, marketing or implementation of Common Reporting Standard (“CRS”) avoidance arrangements and offshore structures.

While tax transparency has significantly improved over the past decade, issues remain in regards to the widespread use of offshore structures to circumvent CRS reporting requirements, as highlighted by the release of both the “Panama” and “Paradise” papers. With the OECD’s proposed model, the rules would require intermediaries to disclose information on potential schemes to their local tax authority. Said information would then be made available to other tax authorities in accordance with the applicable information exchange agreement.

The OECD is now seeking public input from interested parties and stakeholders via the consultation document. The deadline for comments is 15 January 2018.

Please refer to the link for access to the OECD’s press release and consultation document.

Swiss CRS Update: Additional Agreements Approved by Chambers of Parliament

On 6 December 2017, the Swiss Parliament announced their approval of 41 additional partner jurisdictions starting on 1 January 2018 for the Automatic Exchange of Information (“AEOI”) under the CRS. After an initial rejection from one chamber of parliament, Saudi Arabia and New Zealand were also approved and are part of the 41 new partner jurisdictions. In addition to this announcement, the Swiss Parliament outlined strict and detailed requirement criteria for existing and potential Swiss partner jurisdictions. As part of this, the Swiss Federal Council will evaluate whether Swiss partner jurisdictions are compliant with the OECD CRS before Switzerland will exchange any information or data with them. The results of said testing will be communicated to the chambers of parliament.

Please refer to the link for additional details regarding the Swiss Parliament and Federal Council’s AEOI-related decisions.

Additionally, please refer to the link for a list of Switzerland’s current AEOI partner jurisdictions.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

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

Swiss Banking Association Publishes Circular Regarding W-8 Form Translations, the FFI Agreement Extension, and FATCA Qualification Board Evaluations

On 5 October 2017, the Swiss Banking Association (“SBA”) published Circular 7939, which covers the translations of IRS Forms W-8BEN and W-8BEN-E, the extension of the FFI Agreement renewal, and several evaluations made by the FATCA Qualification Board.

With this Circular, the SBA has provided Swiss Financial Institutions (“FIs”) with German, French, and Italian translations of the current and updated IRS Forms W-8BEN and W-8BEN-E. FIs may use the translated IRS Forms effective immediately. Additionally, the Circular includes a reminder that the new IRS Form W-8IMY must be implemented and used by 1 January 2018, while all other new W-8 Forms must be implemented and used by 1 February 2018. Please refer to the link to find the German, French, and Italian translations of the IRS Forms W-8BEN and W-8BEN-E in PDF format under Circular 7939.

Circular 7939 also discusses the IRS-granted extension for FIs that have not renewed their FFI Agreement. On 1 August 2017, the IRS published a FAQ clarifying that FIs have been granted an extension until 24 October 2017 to renew their FFI Agreement. Please refer to the link for access to the FAQ published by the IRS (the FFI Agreement renewal topic is covered in question 12 under “Registrations Update”).

Lastly, Circular 7939 discusses various evaluations made by the FATCA Qualification Board, including evaluations made regarding FATCA self-certifications and plausibilization, deaths of US person(s) controlling a passive NFFE, and identifying entitled third party beneficiaries of cash value and annuity insurance contracts. Please refer to the following links for additional details to the evaluations made by the FATCA Qualification Board:

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

Swiss Banking Association Publishes New Circulars Regarding W-8 Forms and Section 871(m)

Swiss Banking Association Publishes Factsheet for Limitation on Benefits Provisions on the Updated IRS Form W-8BEN-E

On 22 September 2017, the Swiss Banking Association (“SBA”) published a factsheet for the limitation on benefits (“LOB”) provisions included on the updated IRS Form W-8BEN-E according to the revised Qualified Intermediary Agreement (in force as of 1 January 2017). The factsheet will provide Financial Institutions (“FIs”) with generic and simplified definitions of the various LOB categories listed on the W-8BEN-E and Treaty Statements. While the factsheet does not constitute tax advice, FIs may use it as a guidance for their entity clients when they complete the LOB section of the W-8BEN-E or Treaty Statement. Furthermore, the factsheet covers the additional categories of the Swiss-U.S. income tax treaty.

The factsheet is available in German, French, Italian, and English. It can be found on the SBA’s website published as Circular 7936. Please refer to the link for the factsheet in PDF format.

Swiss Banking Association Publishes Circular Regarding the Classification of Dividend-Equivalent Payments According to Section 871(m)

On 26 September 2017, the Swiss Banking Association (“SBA”) published Circular 7937 in order to provide clarification regarding the classification of dividend-equivalent payments relating to Section 871(m). Under the Qualified Intermediary Agreement, FIs must withhold tax on US-source income to non-US recipients (withholding rates vary depending on which Double Tax Treaty rate applies), and this includes certain dividend-equivalent payments under Section 871(m).

The SBA had several discussions with the State Secretariat for International Financial Matters and the Swiss Federal Tax Administration (“FTA”), which resulted with the FTA releasing a ruling describing the classification of payments within the scope of 871(m). Based on this, the Circular covers the classification of dividend-equivalent payments according to Section 871(m) as applicable under the Switzerland-US Double Tax Treaty. Additionally, the Circular discusses how withholding on US-source income applies to this classification of dividend-equivalent payments.

Please refer to the link for access to the SBA’s Circular 7937.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@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