Global tax compliance（FATCA, CRS, QI, QDD）

Regime overview

The United States has played a leading role in the field of international tax compliance to date, first introducing the Qualified Intermediary (QI) regime in 2001 and then concluding agreements with numerous countries before launching the Foreign Account Tax Compliance Act (FATCA) in 2014. With FATCA, which identifies US persons, having gained traction worldwide, Common Reporting Standards (CRS) have now been introduced, using the FATCA framework to identify residents of countries around the world. QI and FATCA are US tax laws but CRS are standards established by the OECD, and countries in agreement with these standards have put in place their own laws and regulations and are exchanging information among themselves. In Japan, a revised version of the Act on Special Provisions for the Enforcement of Tax Treaties was introduced in January 2017.

Further new developments include the Qualified Derivative Dealer (QDD) rules and the Crypto-Asset Reporting Framework (CARF).

To combat transactions that use financial derivatives referencing US stocks to generate the same economic effects as owning US stocks without directly owning them, the Internal Revenue Service (IRS) in 2017 introduced Section 871(m) of the Internal Revenue Code and related regulations. The QDD rules were accordingly introduced in the 2017 QI Agreement as a system for financial institutions that handle derivative financial instruments traded in counterparty transactions. Several Japanese financial institutions have already acquired QDD status to handle margin trading of US securities or Contracts for Difference (CFD).

In addition, the OECD has announced revisions to CRS and to CARF, the new framework for reporting cryptographic assets, and the field of international tax compliance is gaining in robustness and importance.

Service overview

Deloitte Tohmatsu has extensive knowledge of international tax compliance and provides a variety of services to over 200 financial institutions in Japan.

Complying with complex and evolving global information reporting requirements is a major challenge for organizations and financial institutions. Manually collecting the data you need takes time and resources that could be better spent on more strategic tasks such as focusing on growth and innovation.

Using a variety of tax reporting services, our Global Information Reporting Service helps clients identify, document, and report accountholder, customer, and investor information to tax authorities with minimal impact on their businesses so that they can meet their regulatory and compliance obligations. We combine a deep understanding of regulatory information reporting revisions with extensive experience in achieving multi-jurisdictional compliance.

We also provide technical advice, gap analysis assessments, implementation assistance, and process reviews for global information reporting under FATCA, CRS, QI rules, etc. We also offer QI and Withholding Foreign Partnership (WP) strategy reviews for international organizations seeking to improve tax return preparation and tax audit compliance. We leverage our specialized jurisdictional knowledge through the Deloitte network to help clients make the best decisions possible.

Service examples

QI

We provide full support for compliance with the new QI Agreement in effect as of 2023. In addition to the fact that samurai bonds issued by US entities are now subject to QI, it is also necessary to obtain QI status and become a Qualified Derivatives Dealer (QDD) when handling certain financial derivative products that reference US equities.

Deloitte Tohmatsu provides financial institutions planning to become a new QI/QDD with the support of our US tax professionals in applying for a QI/QDD agreement, establishing a compliance program, and electronically filing Form 1042S.

FATCA

Japanese financial institutions are required to comply with FATCA in accordance with not only US-Japan intergovernmental statements but also the provisions of the FFI Agreement and US Treasury regulations, and they must submit electronic reports directly to the US IRS through Form 8966 (FATCA reporting) for identified US persons and others.

FATCA was started with many issues still unaddressed, including the postponement of the introduction of withholding on pass-through payments and the announcement of a proposed suspension of withholding on sales and redemption amounts of US assets. At Deloitte Tohmatsu, US tax professionals from Deloitte Tohmatsu Tax Company and financial specialists from Deloitte Touche Tohmatsu LLC work together to properly understand the FATCA rules and provide optimal support to Japanese financial institutions.

OECD CRS

More than 100 countries have already pledged their support for CRS, which Japan introduced in 2017. CRS differ from FATCA primarily in that domestic laws will be enacted and financial institutions will be required to report to the Japanese government, but there are numerous subtle differences between the two. Since many residents around the world in addition to US persons are subject to CRS, a good number of issues remain unaddressed, such as ensuring that non-residents are managed and obtaining, managing, and reporting identification numbers for taxpayers from various countries. National laws have been enacted and enforcement provisions for noncompliance established.

In addition, the National Tax Agency has begun investigations to verify collected notifications and customer attributes, so stricter compliance will be required.