Archived GIR news and views⁠

GIR developments⁠—Archive

2019

December 16, 2019: The IRS released Final Regulations, T.D. 9887, and Notice 2020-02, providing guidance for the treatment of dividend equivalent payments and an implementation timetable. The Final Regulations defines the term "broker" and indicate when the delta of an option that is listed on a foreign regulated exchange may be calculated. For a transaction involving multiple brokers or dealers, the regulations also provide guidance as to which party is responsible for determining whether a transaction is an 871(m) transaction. In conjunction with the release of the Final Regulations, Notice 2020-02 extends the effective phase-in period for certain 871(m) transactions. As it relates to relevant provisions of the 2017 Qualified Intermediary Agreement, the notice extends the period through 2022 in which the IRS will take into account the extent to which a Qualified Derivatives Dealer made a good faith effort to comply. Please refer to the IRS bulletin for details regarding the guidance.

October 21, 2019: The IRS Large Business and International (LB&I) published a new Practice Unit—Evaluation of Withholding Agent’s Electronic Books and Records on Reliability of Forms W-8. Practice Units serve as job aids and training materials on tax issues for IRS staff and are not intended to be used, cited, or relied upon as official pronouncements of law or directives. Further, as Practice Units only describe general tax concepts, they do not restrict an IRS examiner’s ability to employ other approaches when examining issues.

This new Practice Unit relates to audits of withholding agents for Chapter 3 purposes and describes the process and considerations for assessing the reliability of a withholding agent’s electronic systems and procedures for creating, collecting, and storing account holders’ Forms W-8. Where an examiner determines it is more efficient to review a withholding agent’s electronic data instead of hardcopy records, the below eight steps outline how the examiner will obtain the electronic data to determine the reliability of the information provided on the Forms W-8. The Practice Unit provides further detail on each step, including questions for the examiner to consider when assessing the systems and procedures.

1. Evaluate the withholding agent’s Form 1042-S reporting using IRS systems,

2. Obtain an understanding of the system's ability to accumulate documentation and assess the reliability of supporting documentation,

3. Use Information Document Request (IDR) inquiries to assess the reliability of the systems,

4. Analyze the procedures and systems used for opening accounts,

5. Review documentation and responses obtained from any introducing brokers,

6. Review documentation and responses obtained from any third-party repositories,

7. Review agency agreements between the withholding agent and any agents with which it maintains a shared documentation system, and

8. Assess the reliability of the withholding agent's books and records by reviewing electronic storage and maintenance of Forms W-8.

October 9, 2019: The IRS sent a bulletin alert (Alert 2019-08) informing applicants that November 15, 2019 is the deadline to submit applications to have a Qualified Intermediary (QI) (including Qualified Derivatives Dealer (QDD)), Withholding Foreign Partnership (WP), or Withholding Foreign Trust (WT) agreement in effect in 2019. The application must be submitted through Qualified Intermediary, Withholding Foreign Partnership, Withholding Foreign Trust Application & Account Management System (QAAMS). Prior to submitting an application, applicants must obtain a GIIN.

September 20, 2019: The US Treasury Department announced the entry into force of tax treaty protocols with Luxembourg and Switzerland. This announcement comes on the heels of the Treasury’s previous announcement regarding the Protocols to the 2003 tax treaty between Japan the United States and the 1990 tax treaty between Spain and the United States.

The 2009 Protocol to the 1996 tax treaty between the US and Luxembourg entered into force on September 9, 2019. The protocol provides for a more robust exchange of information between the two countries’ tax authorities by bringing the rules into closer conformity with both the US Model Income Tax Convention and the Organization for Economic Cooperation and Development (OECD) standards for the exchange of tax information. The protocol is limited to modernizing the exchange of information rules and does not affect withholding rates or rules. The full text of the Luxembourg protocol and tax treaty are available here: Protocol and Treaty

The 2009 Protocol to the 1996 tax treaty between the US and Switzerland entered into force on September 20, 2019, and will apply as of January 1, 2020, for withholding tax purposes. The Switzerland protocol also updates the rules governing the exchange of tax information by incorporating current international standards. Additionally, once in effect, the protocol will revise the dividends article by restating the exemption for qualified pension funds and other qualified retirement arrangements in order to provide individual retirement accounts with the same benefits available to pensions under the tax treaty. Specifically, a zero percent withholding tax rate will apply to dividends paid to qualified pension arrangements, other qualified retirement arrangements, and qualified individual retirement savings plans. The protocol will not impact the tax treatment of other dividends, interest, or royalties. The full text of the Switzerland protocol and tax treaty are available here: Protocol and Treaty

August 30, 2019: The US Treasury Department announced that the Protocol to the 2003 tax treaty between Japan and the United States entered into force upon the exchange of instruments of ratification in Tokyo on August 30th and will apply as of November 1, 2019, for withholding tax purposes. The protocol introduces important updates to the tax treaty. When in effect, a zero percent withholding tax rate will apply to dividends paid to a qualifying pension fund or to a company that meets one of the specified limitation on benefits provisions and that owns, directly or indirectly, through one or more residents of either contracting state, at least 50 percent of the voting stock of the payer company for the six-month period ending on the date on which entitlement to the dividends is determined, a five percent rate will apply to dividends paid to a company that owns, directly or indirectly, at least 10 percent of the voting stock of the payer company on the date on which entitlement to the dividends is determined, otherwise, the rate will be 10 percent. Where dividends are paid by a Japanese company that is entitled to a deduction for dividends paid to its beneficiaries in computing its taxable income in Japan or by a US regulated investment company (RIC) or real estate investment trust (REIT), the treaty should be consulted for special rules that may limit the applicability of the reduced dividend withholding tax rates under the treaty. A 10 percent rate will apply to certain contingent interest and the domestic rate will apply to certain interest relating to ownership interests in an entity used for the securitization of real estate mortgages or other assets, otherwise, the rate on interest will be zero percent. The interest article of US treaties should be consulted for special rules that may apply to interest on certain back-to-back loans. The withholding tax rate on royalties will not be affected by the protocol. The full text of the Japan protocol and the treaty may be found here: Protocol and Treaty.

On the same date the US Treasury Department announced that the Protocol to the 1990 tax treaty between Spain and the United States will enter into force on November 27, 2019, and will apply as from the same date for withholding tax purposes. When in effect, the protocol provides for a zero percent withholding tax rate on dividends paid to a qualifying pension fund or to a company that meets one of the specified limitation on benefits provisions and that owns, directly or indirectly, through one or more residents of either contracting state, shares representing 80 percent or more of the voting stock of the payer company for a 12-month period ending on the date on which entitlement to the dividends is determined, a five percent rate will apply to dividends paid to a company that owns directly at least 10 percent of the voting stock of the payer company, otherwise, the rate will be 15 percent. Where dividends are paid by a Spanish real estate investment trust (SOCIMI) or investment institution or by a US regulated investment company (RIC) or real estate investment trust (REIT), the treaty should be consulted for special rules that may limit the applicability of the reduced dividend withholding tax rates under the treaty. Interest and royalties generally will be taxable only in the state of residence of the recipient. The interest article of US treaties should be consulted for special rules that may apply to residual interest from real estate mortgage investment conduits, certain contingent interest and interest on certain back-to-back loans. The full text of the Spain protocol and the treaty may be advised here: Protocoland Treaty.

August 27, 2019: The IRS circulated a bulletin (PR-2019-23) about amendments made to the Revenue Procedure 2019-23 (Implementation of Nonresident Alien Deposit Interest Regulations). According to this news, Georgia (country) was added to the list of the countries with which the United States has in force an information exchange agreement. As a result of this update, the interest paid to the residents of Georgia must be reported by payors to the extent required under Treas. Reg. §§1.6049-8(a) and 1.6049-4(b)(5) (requiring Form 1042-S reporting of bank deposit interest paid to certain non-resident aliens for deposits maintained within a US office). The same revenue procedures adds Curaçao and Cyprus to the list of jurisdictions with respect to which the Treasury and the IRS have determined that it is appropriate to have an automatic exchange relationship regarding the bank deposit interest income information.

August 9, 2019: The IRS has issued long awaited guidance on “cloud transactions” in the form of proposed regulation (REG-130700-14) section 1.861-19 which provides rules for classifying cloud transactions as either a provision of services or a lease of property. A cloud transaction is defined as a transaction through which a person obtains non-de-minimis on-demand network access to computer hardware, digital content, or other similar resources. Proposed regulation section 1.861-19(c)(2) contains a non-exhaustive list of factors for determining whether a cloud transaction is classified as a provision of services or a lease of property including the statutory factors described in section 7701(e)(1). In addition, existing regulation section 1.186-18 was modified through proposed regulation 1.861-18 to broaden its scope and apply to all transfers of “digital content.” Digital content is defined as any content in digital format and that is either protected by copyright law or is no longer protected by copyright law solely due to the passage of time, whether or not the content is transferred in a physical medium. Digital content includes, for example, books, movies, and music in digital format in addition to computer programs. We will follow-up with additional details as they develop.

July 24, 2019: The IRS released an early draft version of Form 1099-NEC, Nonemployee compensation. Due to the different deadline for reporting NEC compared to other payments reported on a Form 1099-MISC (January 31 for NEC vs February 28 or March 31 for other payments filed on paper or electronically, respectively), the IRS broke out NEC reporting to a new form to help simplify NEC reporting. Comments on the draft Form 1099-NEC are due by September 30, 2019, and the form is proposed to go-live for the 2020 tax year with first filing in 2021. The draft form can be downloaded from the IRS here: https://www.irs.gov/pub/irs-dft/f1099nec--dft.pdf. We will follow-up with additional details as they develop.

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FATCA/CRS guidance⁠—Archive

2019

December 16, 2019: The IRS released Final Regulations, T.D. 9887, and Notice 2020-02, providing guidance for the treatment of dividend equivalent payments and an implementation timetable. The Final Regulations defines the term "broker" and indicate when the delta of an option that is listed on a foreign regulated exchange may be calculated. For a transaction involving multiple brokers or dealers, the regulations also provide guidance as to which party is responsible for determining whether a transaction is an 871(m) transaction. In conjunction with the release of the Final Regulations, Notice 2020-02 extends the effective phase-in period for certain 871(m) transactions. As it relates to relevant provisions of the 2017 Qualified Intermediary Agreement, the notice extends the period through 2022 in which the IRS will take into account the extent to which a Qualified Derivatives Dealer made a good faith effort to comply. Please refer to the IRS bulletin for details regarding the guidance.

October 30, 2019: As calendar year 2019 is quickly coming to an end, we wanted to remind US offices and branches of financial institutions, like US banks and US investment entities, that Forms W-8 (except for a Form W-8IMY), without a valid FTIN will generally be considered invalid after December 31, 2019. This applies irrespective of the form’s expiration date. For example, a Form W-8BEN-E signed in 2017 provided without an FTIN will be considered invalid on January 1, 2020, even though it does not expire until December 31, 2020. Consequently, US source income (reportable on Form 1042-S) paid on or after January 1, 2020, will be considered made to an undocumented person subject to US income tax withholding at a rate of 24 percent (backup withholding) or 30 percent (NRA withholding). The above is generally applicable to Forms W-8 signed before January 1, 2018. Forms signed on or after January 1, 2018, were required to contain an FTIN. Please download the PDF to see more details.

October 15, 2019: The IRS updated the FATCA FAQ (FATCA—FAQs General, Reporting, Q3) stating that a “reporting Model 1 FFI is not required to immediately close or withhold on accounts that do not contain a TIN beginning January 1, 2020.” (emphasis added). In the event a TIN is not provided, an error notice to correct the issue within a 120-day period will be generated. If a TIN is not provided within such period, the IRS will consider the facts and circumstances to determine whether there is significant non-compliance. Significant non-compliance may result in a notification being sent the exchange partner and/or revocation of Global Intermediary Identification Number.

September 23, 2019: The IRS issued a bulletin announcing a new file naming convention required for FATCA data packets due to recent upgrades to the International Data Exchange System (IDES). The file name must now follow the below convention, utilizing a Coordinated Universal Time (UTC) timestamp and the GIIN of the sender (FATCAEntitySenderId):
UTC_FATCAEntitySenderId.zip

Further, the UTC must follow a specific timestamp format—YYYYMMDDTHHMMSSmsZ—corresponding to:

YYYY = 4-digit year
MM = 2-digit month
DD = 2-digit day
T = letter T for separating date and time
HH = 24-hour
MM = 2-digit minutes
SS = 2-digit seconds
ms = 3-digit milliseconds
Z = Letter Z – the UTC designator

The IRS has updated its IDES resources to incorporate this change: IDES User Guide, IDES Data Preparation, IDES Data Preparation User Tips

In the same bulletin, the IRS also announced that it has updated the list of approved certificate authorities to revise the names of some of the types of certificates. Note that there have been no changes to the actual certificate authorities. The current list can be viewed here: Link

August 9, 2019: The IRS circulated FATCA News & Information Bulletin (issue number 2019-7) announcing updates to FATCA Metadata XML Schema v1.2 User Guide (Publication 5188), IDES User Guide (Publication 5190), and Sender File Metadata XML. The updated FATCA Metadata XML Schema v1.2 User Guide now includes one new exchange file type. IDES User Guide updates (among others) provide: an explanation on how to add, change and update user contact information and FI GIIN composition, information about clearing browser cache before resetting password, IDES testing window information, and three enumeration values (TEI, ETR, and ETR Status) to Create Sender Metadata File section. Updated Sender File Metadata XML may be accessed here: Link

Full text of the FATCA News & Information Bulletin (issue number 2019-7) may be consulted here: Link

May 6, 2019: The IRS circulated a bulletin (Issue Number: 2019-5) about commencement of a FATCA International Data Exchange Services (IDES) testing session. According to the bulletin, the IDES will be open for testing from June 17, 2019 at 8:00 a.m. EDT to Friday, July 26, 2019 at 5:00 p.m. EDT. The testing session will be available to those users that have completed IDES enrollment by June 13, 2019 at 5:00 p.m. EDT. For participation in the testing, the users will need an active password. All passwords and profile information should be updated before the enrollment cutoff date.

April 19, 2019: The IRS issued a Qualified Intermediaries News alert (issue number 2019-05) about the due date for the selection of the certification period review year on the Qualified Intermediary (QI), Withholding Foreign Partnership (WP), and Withholding Foreign Trust (WT) Application and Account Management System. According to the alert, all QIs, WPs, and WTs with a certification due date of July 1, 2019, must select the periodic review year of the certification period by July 1, 2019. This announcement does not apply to the termination certifications.

April 5, 2019: The IRS updated two FAQs in the Certification and Periodic Review section of its FATCA General FAQ page. One update relates to the independence standard for an external review of a qualified intermediary (QI), withholding foreign partnership (WP), and withholding foreign trust (WT); another update covers the application for the formation of a consolidated compliance group (CCG). The IRS also announced a revision of the EIN application rules due to security concerns.

April 4, 2019: On March 25, 2019, Final Certification Regulations were published in Federal Registrar addressing the verification and certification requirements for sponsoring entities of foreign financial institutions (FFI) and certain non-financial foreign entities (NFFE), trustees of certain trustee-documented trusts, registered deemed-compliant FFI, and financial institutions that implement consolidated compliance programs. Key novelties introduced by the Final Certification Regulations are outlined below. Shortly thereafter, on April 4, 2019, the IRS issued corrections (84 FR 13121, TD 9852) to the Final Certification Regulations changing the date of application of certain provisions of the Final Certification Regulations.

March 25, 2019: The Internal Revenue Service has issued the Regulations relating to the verification and certification requirements for sponsoring entities of foreign financial institutions and certain non-financial foreign entities, trustees of certain trustee-documented trusts, registered deemed-compliant foreign financial institutions, and financial institutions that implement consolidated compliance programs.

March 20, 2019: The IRS issued two FATCA FAQs addressing the certification requirements of a sponsoring entity and a deadline for selecting the periodic review year for the certification due by July 1, 2019 by a qualified intermediary (QI), withholding foreign partnership (WP), and withholding foreign trust (WT).

March 8, 2019: The IRS issued new FATCA FAQs, an alert regarding consolidated compliance group (CCG) status application due date, and a notice about public hearing on proposed FATCA Regulations.

January 29, 2019: The Internal Revenue Service (IRS) issued a FATCA News and Information bulletin stating that significant number of International Data Exchange Service (IDES) digital certificates for FATCA reporting are either expired or set to expire in the next 90 days. The IRS warns that valid IDES digital certifies are required for FATCA reporting through IDES and calls to replace the expired IDES certificates.

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