Tax and Financial Planning articles

Professor William Byrnes International Tax & Financial Services

Abuse of Structured Financial Products: Misusing Basket Options to Avoid Taxes and Leverage Limits

Posted by William Byrnes on July 22, 2014


d54fa-6a00d8341bfae553ef01a3fd36986c970b-piTwo global banks, Deutsche Bank and Barclays Bank, and more than a dozen hedge funds, such as RenTec, misused a complex financial structure to claim billions of dollars in unjustified tax savings and to avoid leverage limits that protect the financial system from risky debt, a Senate Subcommittee investigation has concluded.  The improper use of this structured financial product, known as basket options, is the subject of a 93-page report and 5 hours of testimony.

Please see the story and links to releavnt document and recorded webcast http://lawprofessors.typepad.com/intfinlaw/2014/07/hedge-funds-using-basket-options-to-recharacterize-income-as-long-term-capital-gain-bypass-leverage-.html

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Former Senior Executive of Qualcomm Pleads Guilty to Insider Trading and Money Laundering

Posted by William Byrnes on July 22, 2014


DOJ-U-S-ATTORNEYS-OFFICEJing Wang, 51, the former Executive Vice President and President of Global Business Operations for Qualcomm Inc., today pleaded guilty to insider trading in shares of Qualcomm and Atheros Communications Inc. Wang also pleaded guilty to laundering the proceeds of his insider trading using an offshore shell company.

According to court documents, … read the entire story at http://lawprofessors.typepad.com/intfinlaw/2014/07/former-senior-executive-of-qualcomm-pleads-guilty-to-insider-trading-and-money-laundering.html

 

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Hedge funds using “basket options” to recharacterize income as long term capital gain, bypass leverage limits – Senate webcast hearing today

Posted by William Byrnes on July 22, 2014


13.05.15-SubcommitteeTwo global banks and more than a dozen hedge funds misused a complex financial structure to claim billions of dollars in unjustified tax savings and to avoid leverage limits that protect the financial system from risky debt, a Senate Subcommittee investigation has found.

to watch the webcast and dowload the report, go to http://lawprofessors.typepad.com/intfinlaw/2014/07/hedge-funds-using-basket-options-to-recharacterize-income-as-long-term-capital-gain-bypass-leverage-.html

 

Posted in Financial, Tax Policy | Tagged: , , | Leave a Comment »

new FATCA PodCast (#4) from expert Haydon Perryman

Posted by William Byrnes on July 22, 2014


 

An esteemed FATCA expert Haydon Perryman, who is director of FATCA compliance solutions of Strevus, designed the FATCA programs for two Global Banks, and managed the FATCA programs for over three years for Barclays, Lloyds Banking Group and RBS.

 

He shares his thoughts about designing a FATCA compliance system in his latest podcast: http://justcast.herokuapp.com/shows/haydon-perryman-gatcast/audioposts/7063

 

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IRS releases Instructions for Requester of Forms W–8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY

Posted by William Byrnes on July 21, 2014


Instructions for withholding agents

The IRS released the new instructions to supplement the instructions for the W–8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY, and provide, for each form, notes to assist Treasury-Dept.-Seal-of-the-IRSwithholding agents and FFIs in validating the forms for chapter 3 and 4 purposes in addition to outlining the due diligence requirements applicable to withholding agents for establishing a beneficial owner’s foreign status and claim for reduced withholding under an income tax treaty.

In order to document an account holder or other payee, a withholding agent or an FFI may need to obtain a withholding certificate (i.e., Form W-8 series) to establish the chapter 4 status of a payee or an account holder or the payee’s chapter 3 status, or to validate a payee’s or an account holder’s claim of foreign status when there are U.S. indicia associated with the payee or the account.

Who is a withholding agent?

Any person, U.S. or foreign, in whatever capacity acting, that has control, receipt, custody, disposal, or payment of an amount subject to withholding for chapter 3 purposes or a withholdable payment for chapter 4 purposes is a withholding agent.  The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies.

What if more than one person qualifies as a withholding agent for a payment?

If several persons qualify as withholding agents for a single payment, the tax required to be withheld must only be withheld once.  Generally, the person who pays (or causes to be paid) an amount subject to withholding under chapter 3 or a withholdable payment to the foreign person (or to its agent) must withhold.

Chapter 3 and Form 1099 Responsibilities

A withholding agent making a payment of U.S. source interest, dividends, rents, royalties, commissions, nonemployee compensation, other FDAP gains, profits, or income, and certain other amounts (including broker and barter exchange transactions, and certain payments made by fishing boat operators) must generally obtain from the payee either a Form W-9 or a Form W-8.

  • Form W-9, then must generally make an information return on a Form 1099.
  • Form W-8, then exempt from reporting on Form 1099, but must file Form 1042-S and withhold under the rules applicable to payments made to foreign persons.

Chapter 4 Responsibilities

A withholding agent making a chapter 4 withholdable payment to an entity payee must establish the chapter 4 status of the entity payee to determine if withholding applies by generally obtaining a Form W-8 that you can reliably associate with the payment.

A withholding agent can reliably associate a payment with a Form W-8 for purposes of establishing a payee’s chapter 4 status if, prior to the payment, the withholding agent obtains a valid form that contains the information required for chapter 4 purposes that can reliably determine how much of the payment relates to the documentation, and the withholding agent has no actual knowledge or reason to know that any of the information, certifications, or statements in, or associated with, the documentation are unreliable or incorrect for chapter 4 purposes.

NPFFI

If making a withholdable payment to an entity BUT cannot reliably associate the payment with a Form W-8 or other permitted documentation that is valid for chapter 4 purposes, then treat the entity payee as a nonparticipating FFI.

NFFE

If a withholdable payment to an NFFE, then withhold unless the NFFE (or other entity that is the beneficial owner of the payment) certifies on Form W-8 that it does not have any substantial U.S. owners or identifies its substantial U.S. owners or is a class of NFFE that certifies its status on Form W-8 to obtain an exemption from these requirements.

Requesting & Validating Form W-8

Request a Form W-8 described in these instructions from any person to whom making a payment that can be presumed or otherwise believed to be a foreign person.

Request Form W-8BEN from any foreign individual to whom you are making a payment subject to chapter 3 withholding or a withholdable payment if he or she is the beneficial owner of the income, whether or not he or she is claiming a reduced rate of, or exemption from, withholding (including under an applicable income tax treaty).

Request Form W-8BEN-E from any foreign entity to which you are making a payment of an amount subject to chapter 3 withholding or a withholdable payment if the entity is the beneficial owner of the income, whether or not it is claiming a reduced rate of, or exemption from, withholding (including under an applicable income tax treaty).  For a Form W-8BEN-E that is associated with a withholdable payment to a foreign entity, obtain a valid chapter 4 status for the entity to the extent required for chapter 4 purposes to determine if withholding applies under chapter 4, and must obtain an applicable certification in Parts IV through XXVIII unless provided otherwise in the instructions for Form W-8BEN-E.

Request the form before making a payment so that the form can be reviewed when the payment is made.   A completed Form W-8 must be reviewed for completeness and accuracy with respect to the claims made on the form. This responsibility extends to the information attached to Form W-8, including for Form W-8IMY, withholding statements, beneficial owner withholding certificates, or other documentation and information to the extent such documentation is required to be associated with the Form W-8IMY.

A withholding agent or payer that fails to obtain a Form W-8 or Form W-9 and fails to withhold as required under the presumption rules may be assessed tax at the 30% rate or backup withholding rate of 28%, as well as interest and penalties for lack of compliance.

FFI’s Requirement To Request Form W-8 To Document Account Holders

If an FFI maintains an account for an account holder, the FFI may be required to perform due diligence procedures to identify and document a U.S. account holder or entity account holder even if  not making a payment that is a withholdable payment (or an amount subject to chapter 3 withholding) to the account holder.  Forms W-8 may be used to document the chapter 4 status of a foreign account holder regardless of whether you make a payment that is a withholdable payment or an amount subject to chapter 3 withholding to the account holder, and to validate a claim of foreign status made by the account holder when the account has certain U.S. indicia.

Alternative Certifications Under an Applicable IGA

If an FFI covered under a Model 1 IGA or Model 2 IGA is using Form W-8BEN-E to document account holders pursuant to the due diligence requirements of Annex I of an applicable IGA, then may be permitted to request alternative certifications from the account holders in accordance with the requirements of and definitions applicable to the IGA to instead of the certifications in Parts IV through XXVIII of the Form W-8BEN-E (which are based on the regulations under chapter 4).

If covered by an IGA with alternative certifications, then the FFI should provide those certifications to account holders that provide a Form W-8BEN-E, and the account holder should attach the completed certification to the Form W-8BEN-E in lieu of completing a certification otherwise required in Parts IV through XXVIII of the form.  In such a case, the FFI must provide a written statement to the account holder stating that the FFI has has provided the alternative certification to meet the FATCA due diligence requirements under an applicable IGA and must associate the certification with the Form W-8BEN-E.

A withholding agent (including an FFI) may also request and rely upon an alternative certification from an entity account holder to establish that the account holder is an NFFE (rather than a financial institution) under an applicable IGA.  An entity providing such a certification will still be required, however, to provide its chapter 4 status (i.e., the type of NFFE) in Part I, line 5, as determined under the regulations or IGA, whichever is applicable to the withholding agent.

Alternative certification under an applicable IGA may be relied upon on unless known or have reason to know the certification is incorrect.

Substitute Forms W–8

A withholding agent may develop and use its own Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY (a substitute form) if its content is substantially similar to the IRS’s official Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY (to the extent required by these instructions) and it satisfies certain certification requirements.  The withholding agent may even develop and use a substitute form that is in a foreign language, provided that an English translation of the form and its contents is made available to the IRS upon request.  Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY may be combined into a single substitute form.  A form that satisfies these substitute forms requirements may be treated as a similar agreed form for purposes of an applicable Model 1 IGA, if the partner jurisdiction does not decline such treatment.

Requirements for Obtaining and Verifying a Global Intermediary Identification Number (GIIN)

A Form W-8BEN-E from an entity payee that is identified in Part I, line 1, that is claiming chapter 4 status as a participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (including a reporting Model 1 FFI), or a nonreporting IGA FFI under a Model 2 IGA, provided that the nonreporting IGA FFI is treated as a registered deemed-compliant FFI under the Model 2 IGA, must include and have verified the entity’s GIIN against the published IRS FFI list.   If a withholdable payment to a direct reporting NFFE, then obtain and verify the direct reporting NFFE’s GIIN against the published IRS FFI list.

Due Diligence Requirements

The withholding agent is responsible for ensuring that all information relating to the type of income for which Form W-8 is submitted is complete and appears to be accurate and, for an entity providing the form, includes a chapter 4 status (if required as described above).  In general, a withholding agent may rely on the information and certifications provided on the form (including the status of the beneficial owner as an individual, corporation, etc.) unless it has actual knowledge or reason to know that the information is unreliable or incorrect.

Reason to know that the information is unreliable or incorrect exists if the withholding agent has knowledge of relevant facts or statements contained in the withholding certificate or other documentation that would cause a reasonably prudent person in to question the claims made.

Reason to know

Reason to know that a Form W-8 is unreliable or incorrect materializes if the Form W-8 is incomplete with respect to any item that is relevant to the claims made, the form contains any information that is inconsistent with the claims made, the form lacks information necessary to establish that the beneficial owner is entitled to a reduced rate of withholding, or the withholding agent has other account information that is inconsistent with the claims made.

Period of Validity

Generally, a Form W-8 is valid from the date signed until the last day of the third succeeding calendar year.

book cover

 

—> Instructions for Requester Available here <—-

 

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).

 

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OECD releases Standard for Automatic Exchange of Financial Account Information in Tax Matters

Posted by William Byrnes on July 21, 2014



OCDE_10cm_4c

 

The OECD today released the full version of a new global standard for the exchange of information between jurisdictions.

I have posted Notes on the Common Reporting Standard for Automatic Information Exchange on my new International Financial Professor Law Blog at

http://lawprofessors.typepad.com/intfinlaw/2014/07/the-oecd-today-released-the-full-version-of-a-new-global-standard-for-the-exchange-of-information-between-jurisdictions.html

CRS Due Diligence Standards similar but not identical to FATCA

The CRS contains a reporting and a due diligence standard that underpins the automatic exchange of information, very similar to FATCA.

Due diligence distinguishes between pre-existing accounts and new accounts, individual accounts and entity accounts.

Individual Accounts

Pre-existing accounts do not have a de minimis amount but are divided between low value and high value accounts.

Low Value

Low value accounts have a permanent residency based test based on documentation or, failing that, based upon indicia.  If indicia are found, then either the account holder must provide self-certification or the account must be reported to all jurisdictions to which the indicia attach.

High Value

High value accounts are defined as having an aggregate balance or value of $1 million US dollars by December 31 of a calendar year. High value accounts require a paper based search as well as the test of actual knowledge of the relationship manager.

New Accounts

All new individual accounts (no de minimis) require self-certification, with confirmation of its reasonableness, which can be performed at the time of account onboarding.

Entity Accounts

Preexisting entity accounts

Preexisting entity accounts firstly need to determine if the entity is a reportable person, generally using available AML/KYC information, and if such information is not available, then a self certification will be required from the entity.

However, a preexisting entity account de minimis size of US$250,000 is available at the option of the jurisdiction adopting the CRS.

Passive entity

If the entity is a passive entity then the residency of the controlling members of the entity must be determined.  Passive entity status may be determined by self-certification unless the financial institution has contra-indication information, or information is otherwise publicly available to refute the self-certification.  Controlling members of the entity may be determined based upon the AML/KYC information available.  Control must be interpreted in a manner consistent with the FATF standard.

New entity accounts

For new accounts, the de minimis option is not available because self-certification is easily obtainable at account opening.

See full comments at http://lawprofessors.typepad.com/intfinlaw/2014/07/the-oecd-today-released-the-full-version-of-a-new-global-standard-for-the-exchange-of-information-between-jurisdictions.html

free Lexis FATCA Compliance chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).

Posted in FATCA, OECD | Tagged: , , , , , , | Leave a Comment »

Can the IRS learn from the UK’s Voluntary Compliance Program

Posted by William Byrnes on July 21, 2014


The UK HMRC announced on July 17, 2014 that its High Net Worth Unit (HNWU) has brought in £1bn in compliance yield (approximately US$1.7 billion).

The HNWU, which was set up in 2009, is made up of about 400 staff in 31 customer teams.  HNWU deals with the tax affairs of the 6,200 wealthiest individual customers of HM Revenue and Customs (HMRC) – those with a net worth of £20 million or more.

s630_HMRC_sign__media_library__960_When the unit takes ownership of a customer’s tax affairs, both the customer and their authorised tax agent or adviser will receive a letter welcoming them to HNWU.  This letter also contains contact details for their Customer Relationship Manager.  The relationship manager has detailed oversight over the customer and develops a close understanding of the wealthy individuals tax risks.

The High Net Worth Unit (HNWU) deals with the tax affairs of HM Revenue & Customs (HMRC) wealthiest individual customers. By focusing primarily on this customer group, the unit aims to:

  • build relationships to better understand these customers and make it easier for them to pay the right amount of tax
  • tailor service delivery for these customers through proactive engagement and provide a single point of contact and a holistic approach to their tax affairs

The program, through good customer engagement with a focus on influencing behaviour, has led  to voluntary compliance of the majority of customers, enabling HMRC to allocate its audit resources against noncompliant taxpayers.

What is cooperative compliance

Cooperative compliance means enhancing the relationship between HMRC and our customers to deliver an outcome where both parties work together to achieve the highest possible level of compliance at appropriate cost. This approach is increasingly being recommended as a feature for revenue  organisations for customers with complex affairs. It reflects the growing  mutual interest in being as certain as possible about tax liabilities and in  ensuring that there are no surprises in any later reviews of these liabilities.

Cooperative compliance is not any kind of preferential treatment which compromises the legal position.  In essence it forms part of the compliance risk management process – adding deeper and broader understanding of  the world in which your client operates to our ongoing dialogue.  This approach is one that we wish to have with our HNWU customers.  It does of course rely on the foundation stones of a relationship characterised  by trust, openness and transparency.  We want to move away from only using reactive time consuming formal enquiries to a position where we can have productive pre-filing discussions which help us better understand our  customers’ actions, processes and intentions.

Certainty of Positions

…  The objective is to give earlier assurance, where  appropriate, that we don’t intend to open an enquiry or don’t require  further information. Where we are able, we will write to you and your client if no further action is needed to let you know this, rather than letting you wait until the end of the statutory enquiry period.  This is more likely to be the case where we have established an ongoing dialogue  about your client’s tax affairs. Customers who participated in the trial were  positive about the benefits of this approach.

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Taxpayer Advocate Chimes In On Taxpayer Identification Numbers (TINs)

Posted by William Byrnes on July 21, 2014


Taxpayer AdvocateOn July 16, 2014 Nina Olson, the Taxpayer Advocate released her midyear report to Congress.  Volume 2 of the report contains the IRS’s responses to the administrative recommendations the National Taxpayer Advocate made in her 2013 annual report to Congress, along with additional TAS comments.

Individual Taxpayer Identification Numbers (ITINs)

The Taxpayer Advocated noted that in November 2012, the IRS announced permanent changes to its application procedures for ITINs.  As a result, found the Taxpayer Advocate, dependent ITIN applicants now face a substantial burden because they can no longer use a certifying acceptance agent (CAA) to certify their documents.  Dependents must mail original documents or copies certified by the issuing agency, or have the documents certified at an IRS taxpayer assistance center (TAC) or at one of just four U.S. tax attaché offices overseas.

What is an ITIN?

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a range of 70-88 in the fourth and fifth digit.  The range was extended to include 900-70-0000 through 999-88-9999, 900-90-0000 through 999-92-9999 and 900-94-0000 through 999-99-9999.

The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).  ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.  Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.

What is an ITIN used for?

ITINs are for federal tax reporting only, and are not intended to serve any other purpose. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).  See my previous article on completing the W-8BEN.

An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

Who needs an ITIN?

IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN.  IRS processes returns showing SSNs or ITINs in the blanks where tax forms request SSNs.  IRS does not accept, and will not process, forms showing “SSA”, 205c”, “applied for”, “NRA”, & blanks, etc.

Other examples of individuals who need ITINs include:

  • A nonresident alien required to file a U.S. tax return
  • A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
  • A dependent or spouse of a U.S. citizen/resident alien
  • A dependent or spouse of a nonresident alien visa holder

If a person does not have a SSN and is not eligible to obtain a SSN, but has a requirement to furnish a federal tax identification number or file a federal income tax return, then that person must apply for an ITIN.   By law, an alien individual cannot have both an ITIN and a SSN.

Why Are ITIN Applications Falling, ITIN Application Rejections Increasing?

From January through October 2013, applicants filed only one million ITIN applications with returns, compared to 1.8 million during the same period in 2012. During this period, ITIN applications and accompanying returns declined nearly 50%, while the percentage of applications rejected by the IRS soared to 50.2%.

The Taxpayer Advocate reports that an explanation for these numbers is the burden caused by the new ITIN procedures.

ITIN applicants report problems, including a lack of communication about why the IRS suspended or rejected an application, an inability to speak with IRS employees, a lack of notice about the status of the application, the rejection of applications with legitimate supporting documents, and lost original documents. The IRS’s policy of generally accepting ITIN applications only during the filing season forces the IRS to process applications under short timelines and does not provide sufficient time to review them for potential fraud.

The IRS stated in response that it does not plan to pursue electronic filing of the ITIN application. The IRS provided several reasons why its Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN) is not a suitable candidate for electronic filing:

In order to strengthen the ITIN program, when requesting an ITIN taxpayers are required to submit documentation that supports the information provided on the Form W-7. The applicant can submit original documents or certified copies from the issuing agency. The attachment of an electronic copy of the documents, such as a .pdf version of the supporting documentation, will not allow IRS to authenticate the documents as outlined in IRM 3.21.263. In addition, taxpayers are required to submit their original tax return(s) for which the ITIN is needed with the W-7 attached. The Modernized e-File (MeF) system is not able to accept both the W-7 and associated tax return(s) in the same transaction.

IRS Cancelling Unused ITINs

Individual Taxpayer Identification Numbers (ITINs) will expire if not used on a federal income tax return for five consecutive years, the Internal Revenue Service announced today. To give all interested parties time to adjust and allow the IRS to reprogram its systems, the IRS will not begin deactivating ITINs until 2016.

The new, more uniform policy applies to any ITIN, regardless of when it was issued. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns. The new policy will ensure that anyone who legitimately uses an ITIN for tax purposes can continue to do so, while at the same time resulting in the likely eventual expiration of millions of unused ITINs.

ITINs play a critical role in the tax administration system and assist with the collection of taxes from foreign nationals, resident and nonresident aliens and others who have filing or payment obligations under U.S. law. Designed specifically for tax administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number.

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

book cover

 

Practical Compliance Aspects of FATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA),

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

 

Posted in Compliance, FATCA, W-8BEN-E | Tagged: , , , | Leave a Comment »

New York to Bit- License Virtual Currency Firms

Posted by William Byrnes on July 20, 2014


Bitcoin_euro

 

Benjamin M. Lawsky, Superintendent of Financial Services, announced July 17, 2014 that the New York State Department of Financial Services (DFS) has issued for public comment a proposed “BitLicense” regulatory framework for New York virtual currency businesses. The proposed regulatory framework – which is the product of a nearly year-long DFS inquiry, including public hearings that the Department held in January 2014 – contains consumer protection, anti-money laundering compliance, and cyber security rules tailored for virtual currency firms.

 

 

The new DFS BitLicenses will be required for firms engaged in the following virtual currency businesses:

  • Receiving or transmitting virtual currency on behalf of consumers;
  • Securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers;
  • Performing retail conversion services, including the conversion or exchange of Fiat Currency or other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency;
  • Buying and selling Virtual Currency as a customer business (as distinct from personal use); or
  • Controlling, administering, or issuing a Virtual Currency. (Note: This does not refer to virtual currency miners.)

The license is not requiredfor merchants or consumers that utilize Virtual Currency solely for the purchase or sale of goods or services; or those firms chartered under the New York Banking Law to conduct exchange services and are approved by DFS to engage in Virtual Currency business activity.

Key requirements for firms holding BitLicenses include:

  • Safeguarding Consumer Assets. Each firm must hold Virtual Currency of the same type and amount as any Virtual Currency owed or obligated to a third party. Companies are also prohibited from selling, transferring, assigning, lending, pledging, or otherwise encumbering assets, including Virtual Currency, it stores on behalf of another person. Each licensee must also maintain a bond or trust account in United States dollars for the benefit of its customers in such form and amount as is acceptable to DFS for the protection of the licensee’s customers.
  • Virtual Currency Receipts. Upon completion of any transaction, each firm shall provide to a customer a receipt containing the following information: (1) the name and contact information of the firm, including a telephone number established by the Licensee to answer questions and register complaints; (2) the type, value, date, and precise time of the transaction; (3) the fee charged; (4) the exchange rate, if applicable; (5) a statement of the liability of the Licensee for non-delivery or delayed delivery; (6) a statement of the refund policy of the Licensee.
  • Consumer Complaint Policies. Each firm must establish and maintain written policies and procedures to resolve consumer complaints in a fair and timely manner. The company must also provide notice to consumers, in a clear and conspicuous manner, that consumers can bring complaints to DFS’s attention for further review and investigation.
  • Consumer Disclosures. Companies must provide clear and concise disclosures to consumers about potential risks associated with virtual currencies, including the fact that: transactions in Virtual Currency are generally irreversible and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable; the volatility of the price of Virtual Currency relative to Fiat Currency may result in significant loss or tax liability over a short period of time; there is an increased risk of loss of virtual currency due to cyber attacks; virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to FDIC or SIPC protections; among others.
  • Anti-money Laundering Compliance. As part of its anti-money laundering compliance program, each firm shallmaintain the following information for all transactions involving the payment, receipt, exchange or conversion,purchase, sale, transfer, or transmission of Virtual Currency: (1) the identity and physical addresses of the parties involved; (2) the amount or value of the transaction, including in what denomination purchased, sold, or transferred, and the method of payment; (3) the date the transactionwas initiated and completed, and (4)a description of the transaction.
    • Verification of Accountholders. Firms must, at a minimum, when opening accounts for customers, verify their identity, to the extent reasonable and practicable, maintain records of the information used to verify such identity, including name, physical address, and other identifying information, and check customers against the Specially Designated Nationals (“SDNs”) list maintained by the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”). Enhanced due diligence may be required based on additional factors, such as for high-risk customers, high-volume accounts, or accounts on which a suspicious activity report has been filed. Firms are also subject to enhanced due diligence requirements for accounts involving foreign entities and a prohibition on accounts with foreign shell entities.
    • Reporting of Suspected Fraud and Illicit Activity. Each Licensee shall monitor for transactions that might signify money laundering, tax evasion, or other illegal or criminal activity and notify the Department, in a manner prescribed by the superintendent, immediately upon detection of such a transactions. When a Licensee is involved in a transaction or series of transactions for the receipt, exchange or conversion, purchase, sale, transfer, or transmission of Virtual Currency, in an aggregate amount exceeding the United States dollar value of $10,000 in one day, by one Person, the Licensee shall also notify the Department, in a manner prescribed by the superintendent, within 24 hours. In meeting its reporting requirements Licensees must utilize an approved methodology when calculating the value of Virtual Currency in Fiat Currency.
  • Cyber Security Program: Each licensee must maintain a cyber security program designed to perform a set of core functions, including: identifying internal and external cyber risks; protecting systems from unauthorized access or malicious acts; detecting systems intrusions and data breaches; and responding and recovering from any breaches, disruptions, or unauthorized use of systems.  Among other safeguards, each firm shall also conduct penetration testing of its electronic systems, at least annually, and vulnerability assessment of those systems, at least quarterly.
  • Chief Information Security Officer. Each Licensee shall designate a qualified employee to serve as the Licensee’s Chief Information Security Officer (“CISO”) responsible for overseeing and implementing the Licensee’s cyber security program and enforcing its cyber security policy.
  • Independent DFS Examinations: Examinations of licensees will be conducted whenever the superintendent deems necessary – but no less than once every two calendar years – to determine the licensee’s financial condition, safety and soundness, management policies, and compliance with laws and regulations.
  • Books and Records: Licensees are required to keep certain books and records, including transaction information, bank statements, records or minutes of the board of directors or governing body, records demonstrating compliance with applicable laws including customer identification documents, and documentation related to investigations of consumer complaints.
  • Reports and Financial Disclosures, Audit Requirements. Each firm must submit to DFS quarterly financial statements within 45 days following the close of the Licensee’s fiscal quarter. Each firm must also submit audited annual financial statements, prepared in accordance with generally accepted accounting principles, together with an opinion of an independent certified public accountant and an evaluation by such accountant of the accounting procedures and internal controls of the firm within 120 days of its fiscal year end.
  • Capital Requirements: Necessary capital requirements will be determined by DFS based on a variety of factors, including the composition of the licensee’s total assets and liabilities, whether the licensee is already licensed or regulated by DFS, the amount of leverage used by the firm, the liquidity position of the firm, and extent to which additional financial protection is provided for customers.
  • Compliance Officer. Each Licensee shall designate a qualified individual or individuals responsible for coordinating and monitoring compliance with NYDFS’ BitLicense regulatory framework and all other applicable federal and state laws, rules, and regulations.
  • Business Continuity and Disaster Recovery. Each Licensee shall establish and maintain a written business continuity and disaster recovery plan reasonably designed to ensure the availability and functionality of the Licensee’s services in the event of an emergency or other disruption to the Licensee’s normal business activities.
  • Notification of Emergencies or Disruptions.Each firm must promptly notify DFS of any emergency or other disruption to its operations that may affect its ability to fulfill regulatory obligations or that may have a significant adverse effect on the Licensee, its counterparties, or the market.
  • Transitional Period. Applications for the license will be accepted beginning on the date the proposed regulations become effective. Those already engaged in virtual currency business activity will have a 45-day transitional period to apply for a license from the date regulations become effective. The superintendent will issue or deny the license within 90 days of a complete application submission.

See full press release here.

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DC Appeals rules Stanford’s defrauded investors and not protected by the Securities Investor Protection Corporation (SIPC)

Posted by William Byrnes on July 19, 2014


A three judge U.S. Court of Appeals for the District of Columbia panel unanimously upholding the District Court decision that Stanford International Bank CD Investors do not meet the definition of “customer” under the Securities Investor Protection Act (SIPA).  Thus, the Securities Investor Protection Corporation (SIPC) will not cover the losses of Stanford investors, up to the maximum statutory amount of $500,000 for securities.

What is the SIPC?

SIPC was created under the Securities Investor Protection Act as a non-profit membership corporation. SIPC oversees the liquidation of member broker-dealers that close when the broker-dealer is bankrupt or in financial trouble, and customer assets are missing.

In a liquidation under the Securities Investor Protection Act, SIPC and the court-appointed Trustee work to return customers’ securities and cash as quickly as possible. Within limits, SIPC expedites the return of missing customer property by protecting each customer up to $500,000 for securities and cash (including a $250,000 limit for cash only).

Although created under a federal law, SIPC is not an agency or establishment of the United States Government, and it has no authority to investigate or regulate its member broker-dealers.

SECWhat is the SEC suing the SIPC?

The Securities Investor Protection Act of 1970, 15 U.S.C. § 78ggg SEC functions states that:

(b) Enforcement of actions

In the event of the refusal of SIPC to commit its funds or otherwise to act for the protection of customers of any member of SIPC, the Commission may apply to the district court of the United States in which the principal office of SIPC is located for an order requiring SIPC to discharge its obligations under this chapter and for such other relief as the court may deem appropriate to carry out the purposes of this chapter.

 

What are the facts?

7,000 investors, on the advice of an SEC registered broker dealer Stanford Group Company (Houston, Texas) (“SGC”) that was a member of the SIPC, invested in certificates of deposit (CDs) issued by an Antigua based Stanford International Bank LLC (“SIBL”), not a member of the SIPC.

The CDs are debt assets that promised a fixed rate of return.  The SIBL CD disclosure statements stated that the products are not covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance [sic] Corporation.

What is the central issue? 

The central issue in this appeal is whether investors who purchased SIBL CDs at the suggestion of SGC employees qualify as SGC “customers” under the SIPA, that SIPC may be ordered to cover their losses up to the statutory maximum.

What did the SIPC argue to exclude its protection?

In SIPC’s view, the CD investors were not SGC “customers” within the meaning of the Act, a precondition to liquidation of SGC.  SIPC explained that the Act “protects the ‘custody’ function that brokerage firms perform for customers.”  Here, SIPC concluded, the circumstances fell outside the Act’s custody function because SGC itself never held investors’ cash or securities in connection with their purchase of the CDs. Rather, “cash for the purpose of purchasing CDs . . . was sent to SIBL, which is precisely what the customer intended.”  As for the “physical CDs,” they presumably “were issued to, and delivered to” the investors, and SGC did not “maintain[] possession or control of the CDs.” (citation removed)

Why did the SEC seek to extend SIPC protection?

SEC reached the opposite conclusion.  In June 2011, the Commission issued a formal analysis stating that investors who had purchased SIBL CDs at the urging of SGC employees qualified as SGC “customers” under the Act. Citing evidence that Stanford had “structured the various entities in his financial empire . . . for the principal, if not sole,
purpose of carrying out a single fraudulent Ponzi scheme,” the Commission determined that the “separate existence” of SIBL and SGC “should be disregarded.” (citation removed) ….

The Commission grounds its argument for disregarding the corporate separateness of SIBL and SGC in the doctrine of “substantive consolidation,” an equitable doctrine typically applied in bankruptcy proceedings. “In general, substantive consolidation results in the combination of the assets of [two] debtors into a single pool from which the claims of creditors of both debtors are satisfied ratably.” 2 Collier on Bankruptcy ¶ 105.09[3], at 105-110–11…. Courts have employed a “variety” of tests when assessing whether to grant substantive consolidation. (citation removed) ….

The doctrine of substantive consolidation has been applied in SIPA liquidations. In New Times I, for instance, the bankruptcy court substantively consolidated a SIPC-member
broker undergoing liquidation with a related, non-broker entity.  The assets of the related entity were brought into the SIPC member’s liquidation estate, enlarging the available pool for customer recovery. Investors with cash on deposit with the non-broker entity were treated as “customers” in the liquidation, even though the member broker itself never held those investors’ funds.  (citation removed) ….

Who is a customer under the SIPA?

§78lll Definitions (B) Included Persons

The term ‘customer’ includes-

(i) any person who has deposited cash with the debtor for the purpose of purchasing securities;

(ii) any person who has a claim against the debtor for cash, securities, futures contracts, or options on futures contracts received, acquired, or held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission; and

(iii) any person who has a claim against the debtor arising out of sales or conversions of such securities.

(C) Excluded Persons

The term ‘customer’ does not include any person, to the extent that-

(i) the claim of such person arises out of transactions with a foreign subsidiary of a member of SIPC; or

(ii) such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor, or is subordinated to the claims of any or all creditors of the debtor, notwithstanding that some ground exists for declaring such contract, agreement, or understanding void or voidable in a suit between the claimant and the debtor.

What analysis did the District Court lend to the term customer?

In SEC v. Sec. Investor Prot. Corp., 872 F. Supp. 2d 1 (D.D.C. 2012) Judge Robert Wilkins analyzed this definition of customer by looking to leading treatises.

1024px-D.C._Court_of_Appeals_-_view_from_John_Marshall_ParkAs summarized by one leading treatise, the SIPA statute “attempts to protect customer interests in securities and cash left with broker-dealers….” Loss & Seligman, Securities Regulation ¶ 8.B.5.a, p. 3290 (3rd ed.2003) (citing legislative history) (emphasis added). Another prominent treatise states that “SIPA is designed to protect securities investors against losses stemming from the failure of an insolvent or otherwise failed broker-dealer to properly perform its role as the custodian of customer cash and securities.” 1–12 Collier on Bankruptcy, P. 12.01 (16th ed.) (emphasis added). The usage of the phrase “left with” in the first description and of the term “custodian” in the second description is notable—both usages are in accordance with the plain meaning of statutory term “deposit,” which is “to place esp. for safekeeping or as a pledge” or “[to] giv[e] money or other property to another who promises to preserve it or to use it and return it in kind.” (citation omitted)

Accordingly, it is well settled that “the critical aspect of the ‘customer’ definition is the entrustment of cash or securities to the broker-dealer for the purposes of trading securities.” The “customer” definition has therefore been described as “embodying a common-sense concept: An investor is entitled to compensation from the SIPC only if he has entrusted cash or securities to a broker-dealer who becomes insolvent; if an investor has not so entrusted cash or securities, he is not a customer and therefore not entitled to recover from the SIPC trust fund.” To prove entrustment, the claimant must prove that the SIPC member actually possessed the claimant’s funds or securities. (citation omitted)

What did the Appeals Court’s rule?

When a brokerage firm faces insolvency, the cash and securities it holds for its customers can become ensnared in bankruptcy liquidation proceedings or otherwise be put at risk. Congress established the Securities Investor Protection Corporation (SIPC) to protect investors’ assets held on deposit by financially distressed brokerage firms. SIPC can initiate its own liquidation proceedings with the aim of securing the return of customers’ property held by the brokerage. SIPC, however, possesses authority to undertake those protective measures only with respect to member brokerage firms. Its authority does not extend to non-member institutions.

US-CourtOfAppeals-DCCircuit-SealIn this case, the Securities and Exchange Commission seeks a court order compelling SIPC to liquidate a member broker dealer, Stanford Group Company (SGC). SGC played an integral role in a multibillion-dollar financial fraud carried out through a web of companies. SGC’s financial advisors counseled investors to purchase certificates of deposit from an Antiguan bank that was part of the same corporate family. The Antiguan bank’s CDs eventually became worthless. The massive Stanford fraud spawned a variety of legal actions in a number of arenas, the bulk of which are not at issue here. This case involves the authority of a specific entity—SIPC—to take measures within its own statutorily bounded sphere.  As to that issue, because the Antiguan bank, unlike SGC, was not a SIPC member, SIPC had no ability to initiate measures directly against the bank to protect the property of investors who purchased the bank’s CDs.

The question in this case is whether SIPC can instead be ordered to proceed against SGC—rather than the Antiguan bank—to protect the CD investors’ property. It is common ground that SIPC can be compelled to do so only if those investors qualify as “customers” of SGC within the meaning of the governing statute. SIPC concluded that they do not, and the district court agreed.  The court reasoned that the investors obtained the Antiguan bank’s CDs by depositing funds with the bank itself, not with SGC, and they thus cannot be considered customers of the latter. We agree that the CD investors do not qualify as customers of SGC under the operative statutory definition. We therefore affirm the denial of the application to order SIPC to liquidate SGC.

What was the Appeals Court analysis for the term ‘Customer”?

To come within the fold of SIPA’s protections, an investor thus ordinarily must demonstrate both that the broker “actually . . . received, acquired or held the claimant’s property, and that the transaction giving rise to the claim . . . contain[ed] the indicia of a fiduciary relationship” between the investor and the broker. 1 Collier on Bankruptcy ¶ 12.12[2], at 12-50.  An investor’s “customer” status is evaluated on an asset-by-asset basis and may change over time.

Here, insofar as the analysis focuses on the entity that in fact held custody over the property of the SIBL CD investors, the investors fail to qualify as “customers” of SGC under the statutory definition. That is because SGC never “received, acquired, or held” the investors’ cash or securities. With regard to the investors’ cash, it is undisputed that investors at no time deposited funds with SGC to purchase the SIBL CDs. The funds instead went to SIBL. (citation omitted)

What about the SEC’s Argument for group consolidation?

Even if we were to consolidate, however, SIBL CD investors would not be “customers” of a SIPC-member entity under the statutory definition.  The Act specifically excludes from “customer” status “any person, to the extent that . . . such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor.” We, like other courts, understand that provision to establish that “a claimant cannot qualify for customer status under SIPA to the extent that he or she is a lender rather than an investor.” As the Eleventh Circuit has explained, “[c]ash that is simply lent to the brokerage cannot form the basis of a SIPA customer claim because the statute’s definition of ‘customer’ excludes individuals whose claims are for ‘cash . . . which . . . is part of the capital of the debtor.’” (citation omitted)

Here, investors who purchased SIBL CDs lent funds to SIBL that became part of SIBL’s capital: Those investors gave cash to SIBL in exchange for a promise to be repaid with a fixed rate of return.  The investors invested “in,” not “through,” SIBL.  … Under a consolidated view, investors who purchased SIBL CDs lent money to the consolidated SIBL/SGC entity, forming a “creditor-debtor arrangement.” The CD proceeds thus became part of the consolidated entity’s “capital,” triggering the statutory exclusion from “customer” status for lenders. (citation omitted)

Relevant Sources and Documents

SECURITIES AND EXCHANGE COMMISSION (SEC) v. SECURITIES INVESTOR PROTECTION CORPORATION (SIPC), No. 12-5286 (July 18, 2014 D.C. Court of Appeals)  The  decision is available here SEC v SPIC (Stanford Fraud) DC Appeals 7-18-2014

SIPC has a website regarding the Stanford case here.  SIPC’s statement about the Appeals Court decision is here.

 

 

 

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Ernst & Young pays $4 million for lobbying, violating auditor independence

Posted by William Byrnes on July 18, 2014


OSECn July 14, 2014 the Securities and Exchange Commission (SEC) filed a public administrative and cease-and-desist proceedings against Ernst & Young (E&Y) for E&Y’s violation of audit independence conduct regarding legislative lobbying on behalf of its audit clients.

E&Y has agreed to pay disgorgement of $1,240,000, together with prejudgment interest thereon of $351,925.98, and a civil money penalty of $2,480,000, for a total of $4,071,925.98 and it has agreed to cease & desist the activity.  See http://www.sec.gov/litigation/admin/2014/34-72602.pdf

The SEC public administrative and cease-and-desist proceedings against E&Y arose out of certain legislative advisory services provided by Washington Council EY (“WCEY”), which has been part of EY since 2000. Prior to 2009, certain conduct related to WCEY’s provision of legislative advisory services violated the independence rules with respect to two of EY’s SEC-registrant audit clients.

WCEY sent letters urging passage of bills to congressional staff on behalf of one of its clients.  These bills were important to this client’s business interests.  WCEY also asked congressional staff to insert into a bill a provision favorable to this client.

For another audit client, WCEY attempted to persuade congressional offices to withdraw their support for legislation detrimental to that client’s business interests. In addition, WCEY worked closely with congressional staff in drafting an alternative bill more favorable for the client.   WCEY also marked up a draft of the alternative bill, inserting specific language written by the client and sent the mark-up to congressional staff.

Despite providing the services described herein, E&Y repeatedly represented that it was “independent” in audit reports issued the clients’ financial statements.

By doing so, E&Y violated Rule 2-02(b)(1) of Regulation S-X and caused the clients to violate Section 13(a) of the Exchange Act and Rule 13a-1.  E&Y’s conduct also constituted improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.

 

 

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FedEx corporation criminally indicted for drug trafficking after 9 year DEA investigation

Posted by William Byrnes on July 18, 2014


DEA badge

After a nine-year criminal investigation by the DEA and FDA, on July 17, 2014 the US Attorney for the Northern District of California filed a criminal indictment by a federal grand jury against FedEx Corporation, FedEx Express, Inc., and FedEx Corporate Services, Inc., for conspiracies to traffic in controlled substances and misbranded prescription drugs for its role in distributing controlled substances and prescription drugs for illegal Internet pharmacies.

If found guilty, the Fed Ex defendants face a maximum sentence of 5 years of probation, and a fine of up to $1.6 billion representing twice the gross gain derived from the offense, alleged in the indictment to be at least $820 million.  FedEx would also be liable for restitution to victims of the crime, as well as forfeiture of the gross proceeds of the offense and any facilitating property.

 

The alleged actions taken by Fed Ex to traffic in controlled substances  include:

  • FedEx established an Online Pharmacy Credit Policy to protect against large balances owed to FedEx.
  • FedEx established a Sales policy to protect its sales professionals commission-based compensation caused by online pharmacies moving shipping locations to avoid detection by the DEA.
  • FedEx adopted a procedure whereby Internet pharmacy packages from problematic shippers were held for pick up at specific stations.
  • FedEx’s employees knew that online pharmacies and fulfillment pharmacies affiliated with both the Chhabra-Smoley organization and Superior Drugs were closed down by state and federal law enforcement agencies and that their owners, operators, pharmacists, and doctors were indicted, arrested and convicted of illegally distributing drugs.

The FedEx indictment is available by link here.  The press release is excerpted below.

… In 2004, FedEx established an Online Pharmacy Credit Policy requiring that all online pharmacy shippers be approved by the Credit Department prior to opening a new account. The stated reason for this policy was that many Internet pharmacies operated outside federal and state regulations over the sale of controlled drugs and many sites had been shut down by the government without warning, leaving a large balance owed to FedEx.  According to the indictment, FedEx also established a Sales policy in which all online pharmacies were assigned to a “catchall” classification to protect the commission-based compensation of its sales professionals from the volatility caused by online pharmacies moving shipping locations often to avoid detection by the DEA.

According to the indictment, as early as 2004, FedEx knew that it was delivering drugs to dealers and addicts. FedEx’s couriers in Kentucky, Tennessee, and Virginia expressed safety concerns that were circulated to FedEx Senior management, including that FedEx trucks were stopped on the road by online pharmacy customers demanding packages of pills, that the delivery address was a parking lot, school, or vacant home where several car loads of people were waiting for the FedEx driver to arrive with their drugs, that customers were jumping on the FedEx trucks and demanding online pharmacy packages, and that FedEx drivers were threatened if they insisted on delivering packages to the addresses instead of giving the packages to customers who demanded them. In response to these concerns, FedEx adopted a procedure whereby Internet pharmacy packages from problematic shippers were held for pick up at specific stations, rather than delivered to the recipient’s address.

FedEx is charged in the indictment with conspiring with two separate but related Internet pharmacy organizations: the Chhabra-Smoley Organization, from 2000 through 2008, and Superior Drugs, from 2002 through 2010. In each case, FedEx is alleged to have knowingly and intentionally conspired to distribute controlled substances and prescription drugs, including Phendimetrazine (Schedule III); Ambien, Phentermine, Diazepam, and Alprazolam (Schedule IV), to customers who had no legitimate medical need for them based on invalid prescriptions issued by doctors who were acting outside the usual course of professional practice.

According to the indictment, FedEx began delivering controlled substances and prescription drugs for Internet pharmacies run by Vincent Chhabra, including RxNetwork and USA Prescription, in 2000. When Chhabra was arrested in December of 2003 for illegally distributing controlled substances based on a doctor’s review of an on-line questionnaire, Robert Smoley took over the organization and continued the illegal distribution of controlled substances and prescription drugs through FedEx.

According to the indictment, FedEx began delivering controlled substances and prescription drugs for Superior Drugs in 2002. FedEx’s employees knew that Superior Drugs filled orders for online pharmacies that sold controlled substances and prescription drugs to consumers without the need for a face-to-face meeting with, or physical examination or laboratory tests by, a physician.

According to the indictment, FedEx’s employees knew that online pharmacies and fulfillment pharmacies affiliated with both the Chhabra-Smoley organization and Superior Drugs were closed down by state and federal law enforcement agencies and that their owners, operators, pharmacists, and doctors were indicted, arrested and convicted of illegally distributing drugs. Nevertheless, FedEx continued to deliver controlled substances and prescription drugs for the Chhabra-Smoley organization and Superior Drugs.

“The advent of Internet pharmacies allowed the cheap and easy distribution of massive amounts of illegal prescription drugs to every corner of the United States, while allowing perpetrators to conceal their identities through the anonymity the Internet provides,” said U.S. Attorney Melinda Haag. “This indictment highlights the importance of holding corporations that knowingly enable illegal activity responsible for their role in aiding criminal behavior.”

“Pharmaceutical drug abuse is a serious problem affecting millions of consumers in the United States,” said DEA Special Agent in Charge Jay Fitzpatrick. “While DEA is committed to ensuring patients receive legitimate prescriptions, today’s action should send a strong message that corporations that participate in illegal activity risk investigation and prosecution.”

“Illegal Internet pharmacies rely on illicit Internet shipping and distribution practices. Without intermediaries, the online pharmacies that sell counterfeit and other illegal drugs are limited in the harm they can do to consumers,” said Philip J. Walsky, Acting Director, FDA’s Office of Criminal Investigations. “The FDA is hopeful that today’s action will continue to reinforce the message that the public’s health takes priority over a company’s profits.”

FedEx responded to the charges as follows:

…We have repeatedly requested that the government provide us a list of online pharmacies engaging in illegal activity. Whenever DEA provides us a list of pharmacies engaging in illegal activity, we will turn off shipping for those companies immediately. So far the government has declined to provide such a list.

FedEx transports more than 10 million packages a day. The privacy of our customers is essential to the core of our business. This privacy is now at risk, based on the charges by the Department of Justice related to the transportation of prescription medications.

We want to be clear what’s at stake here: the government is suggesting that FedEx assume criminal responsibility for the legality of the contents of the millions of packages that we pick up and deliver every day. We are a transportation company – we are not law enforcement. We have no interest in violating the privacy of our customers. We continue to stand ready and willing to support and assist law enforcement. We cannot, however, do the job of law enforcement ourselves.

Both UPS and Google settled their investigations relating to online pharmacy business, $40 million (2013) and $500 million (2011) respectively.   UPS established an Online Pharmacy Compliance Officer pursuant to its settlement with the DEA and DOJ.  The Google investigation had its origins in a separate, multimillion dollar financial fraud investigation unrelated to Google, the main target of which fled to Mexico.  While a fugitive, he began to advertise the unlawful sale of drugs through Google’s AdWords program. After being apprehended in Mexico and returned to the United States by the U.S. Secret Service, he began cooperating with law enforcement and provided information about his use of the AdWords program. During the ensuing investigation of Google, the government established a number of undercover websites for the purpose of advertising the unlawful sale of controlled and non-controlled substances through Google’s AdWords program.

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide - This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

 

 

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3rd GATCAst is out

Posted by William Byrnes on July 18, 2014


FATCA expert Haydon Perryman’s 3rd GATCAst is out.  <– Link to his GATCA blog to listen to the webcast ….

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Dodd Frank Progress Report – 4th Year Anniversary

Posted by William Byrnes on July 18, 2014


On July Wall_Street_Sign18, 2014, Davis Polk LLC released its special Dodd-Frank Progress Report to mark the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Progress Report concluded that a total of 280 Dodd-Frank rulemaking requirement deadlines have passed.  Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules.

In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.

 

Contents of Davis Polk’s Dodd Frank Progress Report

o   Dodd-Frank Rulemaking Progress by Agency

o   Title VII Progress on Required Rulemakings

o   Dodd-Frank Rulemaking Progress on Passed Deadlines

o   Dodd-Frank Rulemaking Progress in Select Categories

o   Dodd-Frank Rulemaking Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Rulemakings

o   Dodd-Frank Study Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Studies

o   Tasks for Swap Dealers and Major Swap Participants

 

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2014 Update of OECD Model Tax Convention

Posted by William Byrnes on July 18, 2014


OCDE_10cm_4cOn June 16, 2014 the OECD Council approved the contents of the 2014 Update to the OECD Model Tax Convention.  The OECD stated that this update will be incorporated in a revised version of the Model Tax Convention that will be published in the next few months.

The 2014 Update includes the changes to Article 26 and its Commentary that were approved by the OECD Council on July 17, 2012.  It also includes the final version of a number of changes that were previously released for comments through the following discussion drafts:

The 2014 Update does not include any results from the ongoing work on the BEPS Action Plan. Moreover, the 2014 Update does not include the changes included in the discussion draft of November 15, 2013 on Proposed changes to the provisions dealing with the operation of ships and aircraft in international traffic (except for a change to the Introduction); as indicated in that discussion draft, further work is needed with respect to these changes before they are included in the OECD Model Tax Convention.  The 2014 Update also does not include any of the changes put forward in the discussion draft of October 19, 2012 on Revised proposals concerning the interpretation and application of Article 5 (Permanent Establishment); since it is expected that work on Action 7 (Prevent the Artificial Avoidance of PE Status) of the BEPS Action Plan will result in changes to Article 5, the proposed Commentary changes included in that discussion draft will not be finalised until the work on Action 7 has been completed.

See http://www.oecd.org/tax/treaties/2014-update-model-tax-convention.htm

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Offshore Voluntary Disclosure Initiative (OVDI) leads to average $2,220 a year FBAR penalty for $17 dollar tax understatement

Posted by William Byrnes on July 18, 2014


Disclosures and Amount Recovered Thus Far by OVDI from Non-Compliant Taxpayers 

Treasury-Dept.-Seal-of-the-IRSOn June 18, 2014, IRS Commissioner John Koskinen disclosed that the 2009, 2011, and ongoing 2012 OVDIs have generated more than 45,000 disclosures and the collection of about $6.5 billion in taxes, interest and penalties.  Thus, on its face, the OVDIs look to be batting an average of approximately 9,000 taxpayers a year with approximately $1.3 billion revenue.

However, at the beginning of the year it was reported that (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date.  The past 6 months only generating 2,000 additional disclosures and $500 million additional revenue may lead one to speculate that the OVDI, at least for high net wealth disclosures, is petering out.  Regarding the 2012 IRS Streamlined OVD program, the Taxpayer Advocate found that as of September 2013, 2,990 taxpayers submitted returns reporting only an additional $3.8 million in taxes.

Substantial Money Laundering Penalties – But Not Tax Collection

The substantial majority of the $6.5 billion OVDI revenue is FBAR penalty, not tax collection and not tax penalty.

In the July 16, 2014 report, the Taxpayer Advocate found that the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly 6x the tax on their unreported income.  Among unrepresented taxpayers with small accounts it was nearly 8x the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about 3x their unreported tax.

GAO-13-318, Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion

Table 2: Selected Penalty Information for 2009 OVDP Individual Taxpayers with Closed Cases as of November 29, 2012
10th percentile 25th percentile Median 75th percentile 90th percentile
Offshore account(s) balance $78,315 $190,365 $568,735 $1,595,805 $4,054,505
2009 OVDP penalty $13,320 $35,670 $107,949 $310,476 $793,166
Additional tax owed, tax years 2003-2008 $103 $1,661 $12,748 $60,449 $190,399
Interest,
tax years 2003-2008
$52 482 3,486 17,398 57,129
Other penalties 84 605 3,457 14,290 45,163
Total penalties, interest and taxes $2,318 $22,120 $95,982 $330,185 $923,300
Source: GAO analysis of IRS’s Enforcement Revenue Information System (ERIS) and Individual Returns Transaction File.

In her January 9, 2014 report, the Taxpayer Advocate previously found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances.  The GAO Report of 2013 found that for small accounts of less than $100,000 that over a six year period had only an average of $103 tax owing ($17 a year additional tax revenue), the IRS imposed a FBAR penalty of $13,320 (i.e. $2,220 a year FBAR penalty on average for $17 dollar tax understatement, in additional to the tax penalty and interest).  The 25% percentile paid on average a $5,945 FBAR penalty for an average annual $277 tax understatement.  The median paid a FBAR penalty $17,991 a year for $2,125 a year understatement.

When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70% of the unpaid tax and interest.   Given the harsh treatment the IRS applied to benign actors, the Taxpayer Advocate reported that non-compliant taxpayers have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process.  Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.

Have These Efforts Substantially Increased Taxpayer Compliance?

Taxpayer AdvocateThe Taxpayer Advocate, replying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012 (see Report Volume 1, Page 229).  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).  Thus, currently, less than 10% of taxpayers with FBAR filing requirements are probably compliant.

The Taxpayer Advocate noted that “more than one million U.S. citizens reside in Mexico and many Mexican citizens reside in the U.S.”  The Report pointed out that most persons that worked in Mexico had to pay into a government mandated retirement account (known as an AFORES), and that this retirement account may be reportable to the IRS as a foreign trust.

The GAO reviewed the 2009 OVDP and found that some immigrants stated in their 2009 OVDP applications that they were unaware of their FBAR filing requirements. The GAO found that the immigrants had opened banks accounts in their home country prior to immigrating. The GAO Report revealed:

IRS officials from the Offshore Compliance Initiative office stated that although there are several FBAR education programs, none are specifically targeted at new immigrants. These officials stated that one of the challenges that they face in their office, which is part of IRS’s Large Business and International Division, is that taxpayer education and outreach is the responsibility of IRS’s Wage and Investment Division and that issues concerning FBARs fall under IRS’s Small Business/Self-Employed Division.

The IRS reported to the Taxpayer Advocate that its FY2014 FBAR Communication Strategy includes efforts to reach U.S. citizens residing abroad via Internet, social media, and collaboration with the State Department.

The IRS also responded as follows (excerpted):

Congress enacted both the Title 31 and the Title 26 provisions regarding the reporting requirements of the FBAR … and Form 8938 (Statement of Specified Foreign Financial Assets). Reporting on the FBAR is required for law enforcement purposes under the Bank Secrecy Act, as well as for purposes of tax administration. As a consequence, different policy considerations apply to Form 8938 and FBAR reporting. These are reflected in the different categories of persons required to file Form 8938 and the FBAR, the different filing thresholds for Form 8938 and FBAR reporting, and the different assets (and accompanying information) required to be reported on each form. Although certain information may be reported on both Form 8938 and the FBAR, the information required by the forms is not identical in all cases, and reflects the different rules, key definitions (for example, “financial account”), and reporting requirements applicable to Form 8938 and FBAR reporting.

These differing policy considerations were recognized by Congress during the passage of the HIRE Act and the enactment of Section 6038D. Congress’s intention to retain FBAR reporting requirements, notwithstanding the enactment of section 6038D, was specifically noted in the Technical Explanation of the Revenue Provisions Contained in Senate Amendment 3310, the “Hiring Incentives To Restore Employment Act,” …

The Technical Explanation states that “[n]othing in this provision [section 511 of the HIRE Act enacting new section 6038D] is intended as a substitute for compliance with the FBAR reporting requirements, which are unchanged by this provision.” (Technical Explanation at p. 60.) …

How Much Tax Revenue Did Congress Expect

13.05.15-SubcommitteeThe Senate Permanent Subcommittee on Investigations issued a report March 4, 2009 entitled “Tax Haven Banks and U.S. Tax Compliance.” This report examined how tax haven banks facilitate tax evasion by U.S. clients that cost U.S. taxpayers an estimated “$100 billion each year”. This Report has been widely cited as authority for the claim that $100 billion is lost in taxes because of evasion of tax through tax havens.

However, the reports citation for this $100 billion figure is only its footnote 1 that cites five magazine articles unsubstantiated information, that also varied widely in terms of opinions regarding the amount of tax losses the U.S. incurs.  The five articles mentioned as the foundation for the $100 billion amount do not refer to any empirical study, do not provide any empirical evidence, and do not provide any statistical methodology.

IRS Commissioner Charles Shulman, in testifying before the Permanent Subcommittee on Investigations on March 4, 2009, was questioned on the analysis of hidden money criminally held overseas:

Senator McCaskell: “Has there been any analysis done of how much of this money that is being hidden overseas is, in fact, a result of criminal activity?”

Mr. Shulman: “Not that I am aware of. I mean, estimating how much money that is overseas and not being paid to the government. As far as I am aware, there is no credible estimate because it is kind of a chicken and egg. It is over there and we have not found it, it is hard to estimate what is there. And all estimates that I have seen have not broken down criminal versus civil because, again, until we see the cases, it is hard to say.”

In the February 25, 2014 175-page bipartisan staff report the Senate Subcommittee increased the $100 billion to $150 billion.  “Contributing to that annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150 billion each year.”  To justify the reporting of this $150 billion a year of lost tax revenue due to “offshore tax schemes”, the Senate Report cites its previous investigatory reports supported by third party articles that refer to transfer pricing issues, not to studies about individual taxpayer offshore noncompliance.

Relative to the reported figure of $150 billion, the additional OVDI tax collection of approximately $500 million a year is just .003% (a third of one percent) of the goal.  The FBAR money laundering penalties prop up the overall collection amount, but it’s a drop in the bucket of the Senate estimate.

How Much Did the Congressional Joint Committee on Tax Estimate FATCA Will Bring in Annually?

JCOT_bThe Congressional Joint Committee on Tax estimated that FATCA will only generate $8.7 billion over ten years or average revenue $870 million per year.  The $870 million annually appears not too far out of line with the tax collections generated by the OVDI the past six years, albeit the compliance costs to global industry to prepare for FATCA is currently estimated near this same amount based on government reports from the UK, Canada, Spain, among other trade partners of the US.

The Florida Bankers Association reported to Fitch that $60 billion and $100 billion in foreign deposits are held in Florida banks, close to 20% of the state’s total deposits.  In 2012, Fitch estimated that a substantial portion of these deposits would NOT expatriate from Florida.  But according to the Texas Bankers Association, FATCA has resulted in an outflow of $500 million of deposits from the Texas banking system already.

Based on a rate of the 15% long terms capital gain that applies to that money over the past six look-back years of Statute of Limitation, the currently cited $150B of lost annual tax revenue would require $1 trillion of annual taxable (hidden) income. To generate $1 trillion of capital gains income at a 5% rate of return requires $20 trillion of “noncompliant” offshore dollars.  Is it likely that noncompliant money represents almost double the M2 money supply (Federal Reserve data of March 6, 2014 about $11T, see http://www.federalreserve.gov/releases/h6/current/) and about 20 times the actual amount of paper dollars that are in circulation?

book cover

 

Fifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives – one voice crafted by the primary author William Byrnes.

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

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How does a small California Chinese sourcing operation end up violating Weapons of Mass Destruction Sanctions?

Posted by William Byrnes on July 17, 2014


Tofasco Inc. of La Verne, California, according to its website, sources Chinese manufactured consumer goods for sale to US retailers.   In an OFAC enforcement announcement of of July 17, 2014, US Treasury described Tofasco as a “small company lacking the sophistication of a larger company conducting international trade”.    Yet, Tofasco settled potential civil liability for an alleged violation of the Weapons of Mass Destruction Proliferators Sanctions Regulations (the “WMDPSR”).  How does a small California Chinese sourcing operation and importer allegedly violate the Weapons of Mass Destruction Proliferators Sanctions Regulations?

Tofasco initially presented trade documents to a bank in connection with a blocked letter of credit transaction representing payment for a shipment of recreational chairs with a substitute bill of lading omitting reference to the Islamic Republic of Iran Shipping Lines (“IRISL”), an entity whose property and interests in property are blocked pursuant to the WMDPSR. However, the bank refused to advise the letter of credit transaction due to IRISL’s involvement.  Tofasco knew of IRISL’s involvement in the transactions.   The Treasury stated that on or about April 16, 2009, Tofasco approached another bank to undertake the blocked property transaction.  Tofasco undertook deliberate steps to evade or avoid U.S. sanctions requirements by obtaining and submitting altered bill of lading documents that concealed IRISL’s involvement.

Thus, the US Treasury found that Tofasco demonstrated reckless disregard for U.S. sanctions requirements in its presentation of trade documents to a second bank and by making payment for ocean freight for an underlying shipment of recreational chairs after the trade documents were rejected by a prior bank.  Moreover, US Treasury found that Tofasco did not appear to have had an OFAC compliance program in place at the time of the apparent violation and Tofasco did not make a voluntary self-disclosure.

Treasury stated that Tofasco appeared to have violated §544.201(a) and §544.205 of the WMDPSR.  §544.201(a) addresses prohibited transactions involving blocked property.

(a) … all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of U.S. persons, including their overseas branches, of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:

(1) Any person listed in the Annex to Executive Order 13382 of June 28, 2005…;

(2) Any foreign person determined … to have engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery (including missiles capable of delivering such weapons), including any efforts to manufacture, acquire, possess, develop, transport, transfer or use such items, by any person or foreign country of proliferation concern;

(3) Any person determined … to have provided, or attempted to provide, financial, material, technological or other support for, or goods or services in support of, any activity or transaction described in paragraph (a)(2) of this section, or any person whose property and interests in property are blocked pursuant to this section; and

(4) Any person determined… to be owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked ….

Although US Treasury determined that Tofasco demonstrated reckless disregard, it did not find that the conduct constituted an “egregious case”.   An egregious case, and the penalty enhancement, is described in my previous article about BNP Paribas’ transactions with Sudan and Iran.   The maximum statutory penalty amount for this was $250,000, and
the base penalty amount was $25,000.  Tofasco did not have a prior OFAC sanctions history.  Tofasco settled the potential civil liability for $21,375.

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide - This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

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compliance jobs on upward trajectory after recent enforcement actions

Posted by William Byrnes on July 15, 2014


Read about Citi’s increase to 30,000 compliance positions by end of year, JP Morgan’s 30% compliance staffing increase and Bank of America’s doubling of audit staffing in last three years….

I’ve written several articles about compliance “whitewashing” on this blog (look under the tab compliance and money laundering). Compliance staffing at many banks has increased since the Patriot Act and renewed enforcement efforts against money laundering. More recently (in the past five years), financial institutions have been called out on dishonest activities with valuation of securities, on dishonest dealings with consumers (see my recent articles about the bank that simply threw away millions of customer mortgage workout files and sent mass mailing denials), on providing financial channels for a government involved in genocide…. I will not go though the entire list.  These cases just stand out as particularly egregious. Compliance looked at, and was in some cases involved with, these transactions.  So, throwing more staff into the cauldron does not quench the fire, nor, hopefully, will this mere fact  satisfy the regulators.

By example, as a regulator, I would need to understand the educational foundation qualification that maps to the employment position. What degree in compliance does the new staff member have? Or is it that persons have been moved into compliance positions without the requisite underlying knowledge to execute the compliance role?

Market Watch at: http://blogs.marketwatch.com/thetell/2014/07/14/citi-will-have-almost-30000-employees-in-compliance-by-year-end/

book cover

Read about financial institutions / banks compliance department requirements in the 5,000 page treatise and compendium of LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

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Annuities and Long Term Care Does the Rider Fit?

Posted by William Byrnes on July 15, 2014


Protection against future long-term care (LTC) expenses is important for all clients.  For the right client, combining LTC insurance with an annuity product can make all the difference between comfort and anxiety late in life.

That the need for LTC coverage is relatively universal, however, does not mean that the analysis of a particular combination annuity-LTC product is any less nuanced.

Just as every client is different, not all LTC riders are created equally—and your advice can prove crucial in finding the most suitable product for the individual client.

Read the thoughts of Professor William Byrnes and Robert Bloink on long term care annuity riders at ThinkAdvisor.

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Interested in exploring a Master or Doctoral degree in the areas of financial services or international taxation? Let’s talk. profbyrnes@gmail.com Watch my youtube video by clicking on the logo to the left.

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Indexed Variable Annuities (IVAs) v. Structured Annuities

Posted by William Byrnes on July 14, 2014


Indexed variable annuities (IVAs) and structured annuities are two relatively new types of hybrid annuity products that are causing rampant confusion in today’s annuity marketplace. Used properly, these products can perform a significant role in a client’s portfolio, making it more important than ever to understand the nuances of these two annuity types.

The investment options offered by IVAs and structured annuities are extremely varied — in terms of opportunities for both market participation and downside protection — making the issue of client suitability particularly important. Today’s clients are looking for a customized product.

So it is time to begin asking: When it comes to IVAs and structured annuities, which product is the right fit?  Read the answer of Professor William Byrnes and Robert Bloink at LifeHealthPro

 

tax-facts-online_medium

Because of the constant changes to the tax law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

 

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Why are regulators so alarmed about Stored Value Cards? and Virtual Currency?

Posted by William Byrnes on July 11, 2014


Why are regulators so alarmed about Stored Value Cards?  Citron Research published a report about the impact on a financial institution’s share value when the financial institution ignores its anti money laundering compliance (and receives a regulatory warning consent order, and worst, a cease & desist order).

Citron Research’s report indicates that stored value cards pose a substantial risk for funding of terrorist activities.  The Report states:

“The Government crackdown on the stored value card business is real and not going anywhere.  In a banking industry article published TODAY, we read “I would think this action sends a message to every other prepaid issuer that they better be buttoned up on AML processes and work very closely with their clients,” Colgan said.

On another topic of money laundering concerns, the LexisNexis chapter on Virtual Currency (e.g. Bitcoin) is being updated by its authors: Emmanuel Rayes (TJSL alumni) and Dr. David Utzke (MAFF, CFE, CFI is a Sr. Agent and lead agent for Virtual Currency and Digital Transactions for the IRS).

Virtual currencies have caught mainstream popularity and use the past 24 months. It was only a matter of time before an internet currency would catch mass adoption because of the convenience, speed, and ease of use that the internet provides. Governments all over the world have had a difficult time regulating virtual currencies due to their unconventional structure that is not typical of paper or fiat currencies and due to the rapid evolution of technology. Bitcoin is one such virtual currency that has caught the attention of government regulators all over the world.

Bitcoin is not a typical currency, but rather it is a crypto-currency. In addition, Bitcoin is based on a decentralized peer-to-peer network that’s not only responsible for the issuing of the currency but also for the transfers of the currency. The general currency model followed by almost every government in the world designates a central authority or bank for the issuing of the currency along with intermediary banking institutions responsible for the transfers and record keeping of user transactions. In the Bitcoin model, the middleman, or bank, is completely removed and the user controls the issuance of the currency in addition to facilitating, verifying and recording every transaction.

book coverA greater concern is that criminals use the anonymity features of Bitcoin to launder money obtained from criminal activities or to fund criminal activities. The transactions made with Bitcoin are disclosed on a public ledger but the identity of the parties conducting the transactions are pseudo-anonymous which makes it laborious to identify the parties making the transfers. This creates increasing difficulty in charging and convicting criminals for crimes committed using Bitcoin.  Read the full crypto-currency chapter, which forms part of the 5,000 page treatise and compendium of LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

 

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IRS Canceling Unused ITINS – 16 Million At Risk

Posted by William Byrnes on July 10, 2014


Individual Taxpayer Identification Numbers (ITINs) will expire if not used on a federal income tax return for five consecutive years, the Internal Revenue Service announced today. To give all interested parties time to adjust and allow the IRS to reprogram its systems, the IRS will not begin deactivating ITINs until 2016.

The new, more uniform policy applies to any ITIN, regardless of when it was issued. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns. The new policy will ensure that anyone who legitimately uses an ITIN for tax purposes can continue to do so, while at the same time resulting in the likely eventual expiration of millions of unused ITINs.

ITINs play a critical role in the tax administration system and assist with the collection of taxes from foreign nationals, resident and nonresident aliens and others who have filing or payment obligations under U.S. law. Designed specifically for tax administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number.

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

What is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a range of 70-88 in the fourth and fifth digit.  Effective April 12, 2011, the range was extended to include 900-70-0000 through 999-88-9999, 900-90-0000 through 999-92-9999 and 900-94-0000 through 999-99-9999.

The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).  ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.  Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.

What is an ITIN used for?
ITINs are for federal tax reporting only, and are not intended to serve any other purpose. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).  See my previous article on completing the W-8BEN.

An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

Who needs an ITIN?
IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN.  IRS processes returns showing SSNs or ITINs in the blanks where tax forms request SSNs.  IRS does not accept, and will not process, forms showing “SSA”, 205c”, “applied for”, “NRA”, & blanks, etc.

Other examples of individuals who need ITINs include:
• A nonresident alien required to file a U.S. tax return
• A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
• A dependent or spouse of a U.S. citizen/resident alien
• A dependent or spouse of a nonresident alien visa holder

If a person does not have a SSN and is not eligible to obtain a SSN, but has a requirement to furnish a federal tax identification number or file a federal income tax return, then that person must apply for an ITIN.   By law, an alien individual cannot have both an ITIN and a SSN.

How to apply for an ITIN?
Use the latest revision of Form W-7, Application for IRS Individual Taxpayer Identification Number to apply. Attach a valid federal income tax return, unless qualifying by exception, and include your original proof of identity or copies certified by issuing agency and foreign status documents.

Do not mail the income tax return to the address listed in the Form 1040, 1040A or 1040EZ instructions. Instead, send the tax return with the Form W-7 and proof of identity and foreign status documents to:

Internal Revenue Service
Austin Service Center
ITIN Operation
P.O. Box 149342
Austin, TX 78714-9342

Applicants outside the United States should contact U.S. Tax Attachés in Beijing, Frankfurt, London, or Paris.

book cover

 

Practical Compliance Aspects of FATCA and GATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

 

 

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The Isaac Brock Society | IRS releases updated FFI list — poor countries falling behind

Posted by William Byrnes on July 9, 2014


The Isaac Brock Society | IRS releases updated FFI list — poor countries falling behind.

Quoting from a story of the above link (which is a must read analysis of the GIIN list): “…Some back-of-the-envelope calculations (jump to table) suggest that, below a certain threshold of both total bank size and per-depositor funds, some banks simply don’t have the resources to comply with FATCA — and so, unsurprisingly, only a small proportion of institutions in low-income countries have signed FFI agreements. In Malawi, for example, it looks like only a quarter of the banks with SWIFT codes are in the FFI list.”

Also, “Nevertheless, some Chinese state-owned banks — Bank of China and ICBC, specifically — made moves to register their Hong Kong and overseas entities during the past month, though China Construction Bank, Agricultural Bank, China Merchants’ Bank, and Minsheng Bank did not.”

 

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FATCA Chapter 1 complementary download

Posted by William Byrnes on July 9, 2014


free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

The second edition of the “LexisNexis® Guide to FATCA Compliance,” discussing the Foreign Account Tax Compliance Act of 2010 (FATCA), has been vastly improved based on over thirty in-house workshops and interviews with tier 1 banks, company and trust service providers, government revenue departments, and central banks. The enterprises are headquartered in the Caribbean, Latin America, Asia, Europe, and the United States, as are the revenue departments and the central bank staff interviewed.Chapter 1 of the book, “Background and Current Status of FATCA,” is available here for free download on SSRN, and also from LexisNexis. The full book is available for purchase from LexisNexis. See weblinks provided in attached PDF. Chapter 1 is primarily authored by Associate Dean William H. Byrnes, IV, of Thomas Jefferson School of Law’s Walter H. & Dorothy B. Diamond International Tax & Financial Services Program, with contributions by Professor Denis Kleinfeld and Dr. Alberto Gil Soriano. The lead author and editor of the overall book is Dean Byrnes (with Dr. Robert J. Munro).

The second edition of the book has been expanded from 25 to 34 chapters, with 150 new pages of regulatory and compliance analysis based upon industry feedback of internal challenges with systems implementation. The 25 chapters in the previous edition have been substantially updated, including many more practical examples, to assist a compliance officer in contextualizing the relevant regulations, provisions of inter-governmental agreements (IGAs), and national rules enacted pursuant to IGAs.

The nine new chapters in this second edition include, for example, an in-depth analysis of the categorization of trusts pursuant to the regulations and IGAs, operational specificity of the mechanisms of information capture, management, and exchange by firms and between countries, insights as to the application of FATCA, and the IGAs within new BRIC (Brazil, Russia, India, China) and European country chapters.

This second edition will provide the financial enterprise’s FATCA compliance officer with the tools needed for developing and maintaining a best practices compliance strategy, starting with determining what information is needed for planning the meetings with outside FATCA experts.

book coverPractical Compliance Aspects of FATCA and GATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

 

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

Number of Pages in PDF File: 58

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3 Model 1B jurisdictions

Posted by William Byrnes on July 9, 2014


Originally posted on GATCA:

Thanks to Donna Nguyen-Comito who pointed out to me that the Bahamas is a Model 1B Country (not a 1A as I previously recorded).

There are now three IGA Model 1B jurisdictions that I am aware of:

  1. Bahamas
  2. Cayman Islands
  3. British Virgin Islands

Feel free to email me: haydon@haydonperryman.com

if you spot anything else I have missed.

View original

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Errors on the IRS list of “Approved FFIs”?

Posted by William Byrnes on July 9, 2014


williambyrnes:

Another excellent analysis from Haydon Perryman. From a “glass is half full” perspective, it’s relatively few errors for a large list. At least, that we can be aware given the limited amount of information currently available.

Of course, when all the data starts to flow, a different story may emerge. Treasury has a daunting challenge not to alienate the public and Congress with false positive audit matches of foreign account information compared to self-reported FBARs, 8938′s, and 1040s. At least, tax audit advisors will be kept very, very busy by their international clientele from 2016 through 2018 while the 2015-2017 initial deluge of information exchanged makes it way through the matching system and then audit process.

Originally posted on GATCA:

Here is a list of potential errors on the IRS list of approved FFIs dated July 1, 2014:

GIIN
FINm
CountryNm
Error Type
A5XSJ3.99999.SL.180
RAWBANK Sarl
CONGO, DEMOCRATIC REPUBLIC OF THE
Wrong ISO3166-1 (last 3 digits of the GIIN) s/b 178
DQANI4.00007.ME.999
NLB Prishtina sh.a., Prishtina
OTHER
“Other” is not a legal jurisdiction
D52QRM.99999.SL.999
IFC Catalyst Fund /Japan/, LP
OTHER
“Other” is not a legal jurisdiction
EMI585.99999.SL.999
INTERNATIONAL BANK ECONOMIC CO-OPERATION
OTHER
“Other” is not a legal jurisdiction
EUJ5WN.00007.ME.999
GRAWE Kosova J.S.C.
OTHER
This may not be an error; GIIN ends in 999 but Kosovo has no ISO 3166-1 Code
FTMA0U.00005.ME.178
UBA Congo Brazzaville SA
CONGO
Wrong ISO3166-1 (last 3 digits of the GIIN) s/b 180
F505Q5.99999.SL.999
IFC Catalyst Fund, LP
OTHER
“Other” is not a legal jurisdiction
F8DB0C.00011.ME.180
Banque Inter. de Credit
CONGO, DEMOCRATIC REPUBLIC OF THE
Wrong ISO3166-1 (last 3 digits of the GIIN) s/b 178
GMPXWL.00013.ME.999
SIGAL…

View original 500 more words

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A commentary on the IRS list (released June 2, 2014) of entities registered for FATCA on the IRS Portal

Posted by William Byrnes on July 9, 2014


williambyrnes:

This is an excellent analysis of the current FFI GIIN list that everyone should read!

Originally posted on GATCA:

Where to begin?

Perhaps the most revealing aspect of the list released by the IRS last night is those entities not on it. The IRS FAQs reveal that the IRS itself believes that the number of entities yet to register could be as high as 500,000. Many experts would put that number closer to 900,000.

Of the 77,353 entities who registered:

  • 70,492 are covered by an IGA (either signed or agreed in substance)
  • 586 are in the US or US Territories
  • 6,275 are in Non IGA Countries

The 6,275 in Non IGA Countries represent only 8.1% of the total registered. One might draw the conclusion that as more countries enter into IGAs this will draw substantial numbers of entities in those jurisdictions to register on the portal. It does appear that a failure to sign an IGA would explain a lack of critical mass of registrants on the FATCA portal.

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101 IGA Countries

Posted by William Byrnes on July 9, 2014


Originally posted on GATCA:

There are now 101 IGA Countries.

(My previous version had not included Kosovo. This was unintentional: Kosovo has no GIINs associated with it – probably because it has no ISO3166-1 code.)

See

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Do the West Bank and Gaza need separate IGAs from the State of Palestine?

Posted by William Byrnes on July 8, 2014


Quick update Tuesday night, July 8th.  Besides Brazil being decimated this afternoon 7 to 1 by Germany (leading to a very unhappy spouse and mother-in-law)  …

Anguilla and Uzbekistan entered the Model 1 IGA list Monday (albeit dated June 30).  Thus, 101 countries and jurisdictions have IGAs and 143 do not, based on the IRS’ revised country list published July 1.  Approximately 95% of the 87,993 registered FFIs are from these IGA countries.  Only 13 of the IGAs are Model 2, with 15,239 FFIs registered. The remainder 88 are Model 1 IGAs.

Curious if the IRS intends to treat the West Bank and Gaza as dependencies of the State of Palestine with each requiring a distinct IGA – being that all three are included on the IRS list (and yet not on the US State Department list as discussed in my early June articles).  Or whether, a “Palestine” IGA will cover all three territories.  If any readers know, please comment below and inform me.

I am also curious of the following: in Treasury’s opinion, IGAs do not require either Congressional approval or Senatorial consent.  That we all know.  Is it also Treasury’s opinion that it can enter into an IGA with Palestine and Cuba?     What is State’s perspective of the IRS including the “State of” Palestine, as well as Gaza and the West Bank, on the FATCA country and jurisdiction list.  Enough cynicism.

My previous articles on this subject of the IRS versus State department include my June 17 State Department listing and my June 8 discussion of the FFI GIIN List of June.

Model 1 IGA – 34 

  1. Australia (4-28-2014)
  2. Belgium (4-23-2014)
  3. British Virgin Islands (6-30-2014)
  4. Canada (2-5-2014)
  5. Cayman Islands (11-29-2013)
  6. Costa Rica (11-26-2013)
  7. Denmark (11-19-2012)
  8. Estonia (4-11-2014)
  9. Finland (3-5-2014)
  10. France (11-14-2013)
  11. Germany (5-31-2013)
  12. Gibraltar (5-8-2014)
  13. Guernsey (12-13-2013)
  14. Hungary (2-4-2014)
  15. Honduras (3-31-2014)
  16. Ireland (1-23-2013)
  17. Isle of Man (12-13-2013)
  18. Israel (6-30-2014)
  19. Italy (1-10-2014)
  20. Jamaica (5-1-2014)
  21. Jersey (12-13-2013)
  22. Latvia (6-27-2014):
  23. Liechtenstein (5-19-2014)
  24. Luxembourg (3-28-2014)
  25. Malta (12-16-2013)
  26. Mauritius (12-27-2013)
  27. Mexico (4-9-2014)
  28. Netherlands (12-18-2013)
  29. New Zealand (6-12-2014)
  30. Norway (4-15-2013)
  31. Slovenia (6-2-2014)
  32. South Africa (6-9-2014)
  33. Spain (5-14-2013)
  34. United Kingdom (9-12-2012)

Jurisdictions that have reached agreements in substance:

Model 1 IGA – 54 (followed by number of registered FFIs)

  1. Algeria (6-30-2014)
  2. Anguilla (6-30-2014)
  3. Antigua and Barbuda (6-3-2014)
  4. Azerbaijan (5-16-2014)
  5. Bahamas (4-17-2014)
  6. Bahrain (6-30-2014)
  7. Barbados (5-27-2014)
  8. Belarus (6-6-2014)
  9. Brazil (4-2-2014):
  10.  Bulgaria (4-23-2014)
  11. Cabo Verde (6-30-2014)
  12. China (6-26-2014)
  13. Colombia (4-23-2014)
  14. Croatia (4-2-2014)
  15. Curaçao (4-30-2014)
  16. Czech Republic (4-2-2014)
  17. Cyprus (4-22-2014)
  18. Dominica (6-19-2014):
  19. Dominican Republic (6-30-2014)
  20. Georgia (6-12-201)
  21. Greenland (6-29-2014)
  22. Grenada (6-16-2014)
  23. Guyana (6-24-2014)
  24. Haiti (6-30-2014)
  25. India (4-11-2014)
  26. Indonesia (5-4-2014):
  27. Kosovo (4-2-2014)
  28. Kuwait (5-1-2014)
  29. Lithuania (4-2-2014)
  30. Malaysia (6-30-2014)
  31. Montenegro (6-30-2014)
  32. Panama (5-1-2014)
  33. Peru (5-1-2014):
  34. Poland (4-2-2014):
  35. Portugal (4-2-2014):
  36. Qatar (4-2-2014):
  37. Romania (4-2-2014):
  38. St. Kitts and Nevis (6-4-2014)
  39. St. Lucia (6-12-2014):
  40. St. Vincent and the Grenadines (6-2-2014)
  41. Saudi Arabia (6-24-2014):
  42. Serbia (6-30-2014)
  43. Seychelles (5-28-2014)
  44. Singapore (5-5-2014):
  45. Slovak Republic (4-11-2014)
  46. South Korea (4-2-2014)
  47. Sweden (4-24-2014)
  48. Thailand (6-24-2014):
  49. Turkey (6-3-2014)
  50. Turkmenistan (6-3-2014)
  51. Turks and Caicos Islands (5-12-2014):
  52. Ukraine (6-26-2014)
  53. United Arab Emirates (5-23-2014)
  54. Uzbekistan (6-30-2014)

Model 2 IGA – 5

  1. Austria (4-29-2014)
  2. Bermuda (12-19-2013)
  3. Chile (3-5-2014)
  4. Japan (6-11-2013)
  5. Switzerland (2-14-2013)

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 8

  1. Armenia (5-8-2014)
  2. Hong Kong (5-9-2014)
  3. Iraq (6-30-2014)
  4. Moldova (6-30-2014)
  5. Nicaragua (6-30-2014
  6. Paraguay (6-6-2014):
  7. San Marino (6-30-2014)
  8. Taiwan (6-23-2014)

FATCA by the Numbers….

Haydon Perryman, FATCA Compliance expert of Strevus, and I are undertaking an analysis of this July 1st FATCA FFI list release by country, by IGA, by EAG – already published in earlier articles July 1 and July 2nd.  Check out Haydon Perryman’s blog at http://haydonperryman.wordpress.com/

IRS Registered FFI List (Sum of Registrations) July ’14# County #
Model 1A IGA 48,265 85
Model 1B IGA 19,580 2
Model 2 IGA 15,239 13
US 620 1
US Territory 61 5
No IGA 4,228 144
Total 87,993 250
Non IGA 4,228 143
Non IGA% 5%
IGA 83,084 101
IGA% 94%
US and US Territories 681 6

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100 IGAs as of July 7, 2014

Posted by William Byrnes on July 7, 2014


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The real Roth conversion question of 401(k) vs. IRA

Posted by William Byrnes on July 7, 2014


For some clients, moving traditional retirement funds into a Roth account may seem like a no-brainer, but once the decision to convert is made, choosing whether to use a Roth IRA or Roth 401(k) can have potentially significant repercussions.

While the typical goal of a Roth conversion — reducing tax liability during retirement — can be achieved with either account, that is where the similarities end.  In order to fully achieve the client’s goals, it is the dissimilarities between these two Roth varieties that can make all the difference.

Read Robert Bloink and WIlliam Byrnes’ analysis of the Roth conversion at LifeHealthPro

 

If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

 

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Has Treasury Changed Its Position Regarding Capital Flight Resulting from FATCA?

Posted by William Byrnes on July 5, 2014


In 2013, I participated in a constitutional law conference regarding international agreements, held in Siberia, Russia.  My invited role was to discuss FATCA’s IGAs basis in US domestic law and international law policy, and comparatively discuss IGAs in the context of various EU countries.  Some of those slides are available in my broader FATCA lecture at the University of Amsterdam International Tax Program Winter Session at http://www.slideshare.net/williambyrnes1/uv-a-winter-2014-fatca-and-eoi

In light of my academic interest in this subject matter, today I came across two pertinent blog posts that I share below, wherein Treasury justifies its policy based upon the potential for capital flight, followed by the Treasury opposite stance to the Court just months before in Florida Bankers Assn v Treasury.  Below I post some of my lecture comments from 2010 regarding FATCA and capital flight.

Does Treasury have new information / data that it did not previously have, leading to its change of stance?  Should we (voters with an interest in a stable financial system) be concerned?  I am being facetious because Treasury (the IRS) does from time to time, in tax cases on an identical issue, advance opposing arguments (I have heard even in front of the same judge), depending on what outcome it wants from the taxpayer.  After all, in law school, we teach our students to argue for both sides on every issue.

Treasury Argues Capital Flight Requires FATCA IGAs With Other Countries 

Professor Jack Townsend’s Blog wherein he posts a letter from Treasury’s Asst. Secretary for Legislative Affairs to a Congressman (Bill Posey) wherein Treasury states its authority to create and enter into IGAs with other nations and their dependencies:  http://federaltaxcrimes.blogspot.com/2014/07/irs-letter-to-congressman-defending-its.html

Treasury’s stated authority is: “Your letter also asks about statutory authority to enter into and implement the IGAs. The United States relies, among other things, on the following authorities to enter into and implement the IGAs: 22 USC Section 2656; Internal Revenue Code Sections 1471, 1474(f), 6011, and 6103(k)(4) and Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B (Information Concerning Transactions with Other Persons).”

Professor Townsend (Houston) includes in the comments to the letter a rebuttal by Professor Allison Christians (McGill) “None of these sources of law contain any authorization to enter into or implement the IGAs.  It is patently clear that no such authorization has been made by Congress, and that the IGAs are sole executive agreements entered into by the executive branch on its own under its “plenary executive authority”.  As such the agreements are constitutionally suspect because they do not accord with the delineated treaty power set forth in Article II.” See Professor Christians full response at http://taxpol.blogspot.com.au/2014/07/irs-claims-statutory-authority-for.html

The above highlight is interesting enough mind you.  But I must point out another aspect of the Treasury justification for IGAs.  Treasury states that: “Suspending further negotiation of IGAs would negatively affect the United States’ ability to enforce the provisions of FATCA without the imposition of substantial withholding tax. … This could result in harm to the interests of the United States because it could prompt divestment from U.S. investments by affected financial institutions.” (emphasis added)

Treasury Argues Capital Flight Is Not a FATCA Concern

But Treasury argued quite the opposite in its recent, successful defense against the Florida and Texas Bankers Associations in Florida Bankers Assn v Treasury.

Quoting the Court:

“The IRS admits that it does not know exactly how much money non-resident aliens have deposited in U.S. banks. …

Instead of using exact data, the IRS estimated, based on a mountain of existing information from the Treasury Department, that non-resident alien deposits in U.S. banks amounted to no more than $400 billion. …

… The IRS was unconcerned because it had determined that very little of this mo.ney would be affected – namely, because these regulations would not deter any rational actor other than a tax fraud from using U.S. banks.

4. Capital Flight

At the heart of the Bankers Associations’ argument – albeit buried somewhat in their brief – is the contention that the regulations should not have been issued given the negative impact they may have on banks. Plaintiffs claim that the IRS “disregarded” a flood of comments arguing that the new regulations would cause non-residents to withdraw their deposits en masse and thereby trigger substantial and harmful capital flight. The IRS, however, did not ignore those comments; indeed, it dedicated a majority of the preamble to addressing concerns about capital flight.

… As a result of those protections, the Government concluded that the “regulations should not significantly impact the investment and savings decisions of the vast majority of non-residents.”

Plaintiffs raise one additional, related issue: They claim that the IRS ignored the massive capital flight that took place after the Canadian reporting requirements became effective in January 2000.  The IRS, by contrast, contends that the alleged Canadian capital flight is a fiction: While the amount of Canadian interest-bearing deposits may have dipped after the reporting requirements were issued, they climbed back up shortly after that.”

See the full article at http://profwilliambyrnes.com/2014/02/25/court-upholds-irs-regulations-for-foreign-taxpayer-interest-reporting-by-us-banks/

Comments from my 2010 lecture on tax elasticity of deposits

Tax Elasticity Of Deposits

In the 2002 article International Tax Co-operation and Capital Mobility, prepared for an ECLAC report, from analysing data from the Bank for International Settlements (“BIS”) on international bank deposits, Valpy Fitzgerald found “that non-bank depositors are very sensitive to domestic wealth taxes and interest reporting, as well as to interest rates, which implies that tax evasion is a determinant of such deposits….”[1]  Non-bank depositors are persons that instead invest in alternative international portfolios and financial instruments.

Estimating How Much Latin American Tax Evasion are US Banks Involved With?

Some Miami based commentators, like the renown author Professor Marshall Langer, estimated that at least $300B of capital outflow will occur from the USA pursuant to its exchange of tax information with Brazil and other Latin American countries, like Argentina and Venezuela.  Based on their discussions with South Florida real estate firms, information exchange will lead to a withdrawal of Latin American interest in its real estate market.  (Note that since 2010, we now know that US information collection will not look through company entities as is required by FATCA from FFIs, and because most real estate for estate tax purposes is held via corporate structures, it will not capture information on most real estate investment.)  

Three historical benchmarks regarding the imposition of withholding tax on interest illustrate the immediate and substantial correlation that an increase in tax on interest has on capital flight.  The benchmarks are (1) the 1964 US imposition of withholding tax on interest that immediately led to the creation of the London Euro-dollar market;[2] (2) the 1984 US exemption of withholding tax on portfolio interest that immediately led to the capital flight from Latin America of US$300 billion to US banks;[3] and (3) the 1989 German imposition of withholding tax that led to immediate capital flight to Luxembourg and other jurisdictions with banking secrecy[4].  The effect was so substantial that the tax was repealed only four months after imposition.

The Establishment of London as an International Financial Center

The 1999 IMF Report on Offshore Banking concluded that the US experienced immediate and significant capital outflows in 1964 and 1965 resulting from the imposition of a withholding tax on interest.  Literature identifies the establishment of London as a global financial centre as a result of the capital flight from the US because of its imposition of Interest Equalisation Tax (IET) of 1964.[5]  The take off of the embryonic London eurodollar market resulted from the imposition of the IET.[6]  IET made it unattractive for foreign firms to issue bonds in the US.  Syndicated bonds issued outside the US rose from US$135 million in 1963 to US$696 million in 1964.[7]    In 1964-65, the imposition of withholding tax in Germany, France, and The Netherlands, created the euromark, eurofranc and euroguilder markets respectively.[8]

The Establishment of Miami as an International Financial Center

Conversely, when in 1984 the US enacted an exemption for portfolio interest from withholding tax, Latin America experienced a capital flight of $300 billion to the US.[9]  A substantial portion of these funds were derived from Brazil.  In fact, some pundits have suggested that Miami as a financial center resulted not from the billions generated from the laundering of drug proceeds which had a tendency to flow outward, but from the hundreds of billions generated from Latin inward capital, nearly all unreported to the governments of origination.

The Establishment of Luxembourg as an International Financial Center

In January of 1989, West Germany imposed a 10% withholding tax on savings and investments.  In April it was repealed, effective July 1st, because the immediate cost to German Banks had already reached DM1.1 billion.[10]  The capital flight was so substantial that it caused a decrease in the value of the Deutsche mark, thereby increasing inflation and forcing up interest rates.  According to the Financial Times, uncertainty about application of the tax, coupled with the stock crash in 1987, had caused a number of foreign investment houses to slow down or postpone their investment plans in Germany.  A substantial amount of capital went to Luxembourg, as well as Switzerland and Lichtenstein.

Switzerland’s Fisc May Come Out Ahead

Perhaps ironically given the nature of the UBS situation currently unfolding, a Trade Based Money Laundering study by three prominent economists and AML experts focused also on measuring tax evasion uncovered that overvalued Swiss imports and undervalued Swiss exports resulted in capital outflows from Switzerland to the United States in the amount of $31 billion within a five year time span of 1995-2000.[11]  That is, pursuant to this transfer pricing study, the Swiss federal and cantonal revenue authorities are a substantial loser to capital flight to the USA.  The comparable impact of the lost tax revenue to the much smaller nation of Switzerland upon this transfer pricing tax avoidance (and perhaps trade-based money laundering) may be significantly greater than that of the USA from its lost revenue on UBS account holders.  Certainly, both competent authorities will have plenty of work on their hands addressing the vast amount of information that needs to be exchanged to stop the bleeding from both countries’ fiscs.

 

[1] International Tax Cooperation and Capital Mobility, Valpy Fitzgerald, 77 CEPAL Review 67 (August 2002) p.72.

[2] See Charles Batchelor, European Issues Go from Strength to Strength: It began with Autostrade’s International Bond in 1963, The Financial Times (September 25, 2003) p.33; An E.U. Withholding Tax?

[3] Globalisation, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000).

[4] Abolition of Withholding Tax Agreed in Bonn Five-Month-Old Interest Withholding To Be Repealed, 89 TNI 19-17.

[5] See Charles Batchelor, European Issues Go from Strength to Strength: It began with Autostrade’s International Bond in 1963, The Financial Times (September 25, 2003) p.33; An E.U. Withholding Tax?

[6] 1999 IMF Offshore Banking Report  p.16.

[7] 1999 IMF Offshore Banking Report  p.16-17.

[8] 1999 IMF Offshore Banking Report  p.17.

[9] Globalisation, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000).

[10] Abolition of Withholding Tax Agreed in Bonn Five-Month-Old Interest Withholding To Be Repealed, 89 TNI 19-17.

[11] Maria E. de Boyrie, Simon J. Pak and John S. Zdanowicz The Impact Of Switzerland’s Money Laundering Law On Capital Flows Through Abnormal Pricing In International Trade Applied 15 Financial Economics 217–230 (Rutledge 2005).

 

book coverPractical Compliance Aspects of FATCA and GATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

 

 

 

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66th country signs OECD Convention on Tax Information Exchange

Posted by William Byrnes on July 4, 2014


The OECD announced yesterday that Gabon became the 66th country to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Gabon is the seventh African country to sign the Convention since it was opened for signature to all countries in June 2011.  (previous article on tax information exchange)

“Already a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes since October 2012, Gabon’s commitment today plays an important role for regional co-operation in tax matters and demonstrates effective action towards greater exchange of information”, said Pascal Saint-Amans. “We hope it will act as an encouragement to other African and developing countries to also join this important area of international co-operation in the fight for a fairer and more transparent international tax system”.

The Convention provides for all forms of mutual assistance: exchange on request, spontaneous exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection , while protecting taxpayers’ rights. It also provides the option to undertake automatic exchange, requiring an agreement between the Parties interested in adopting this form of assistance.

Automatic Exchange of Information for Tax Purposes

47 countries and major financial centers on May 6, 2014 committed to automatic exchange of information between their jurisdictions, announced the OECD.  All 34 OECD member countries, as well as Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa  endorsed the Declaration on Automatic Exchange of Information in Tax Matters that was released at the May 6-7, 2014 Meeting of the OECD at a Ministerial Level.

The Declaration commits countries to implement a new single global standard on automatic exchange of information (“CRS” or “GATCA”).  The OECD stated that it will deliver a detailed Commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 finance ministers in September 2014.

Common Reporting and Due Diligence Standards (“CRS”)

February 13 the OECD released the Standard for Automatic Exchange of Financial Account Information Common Reporting Standard.  The Draft Commentaries for the CRS, developed by the Working Party No. 10 on Exchange of Information and Tax Compliance, and discussed at its May 26-28, 2014 meeting, are expected to be released very shortly, in July.

The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. Part I of the report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

What are the main differences between the CRS (“GATCA”) and FATCA?

The CRS is also informally called “GATCA”, referring to the “globalization” of FATCA.

The CRS consists of a fully reciprocal automatic exchange system from which US specificities have been removed. For instance, it is based on residence and unlike FATCA does not refer to citizenship. Terms, concepts and approaches have been standardized allowing countries to use the system without having to negotiate individual Annexes.

Unlike FATCA the CRS does not provide for thresholds for pre-existing individual accounts, but it includes a residence address test building on the EU savings directive. The CRS also provides for a simplified indicia search for such accounts. Finally, it has special rules dealing with certain investment entities where they are based in jurisdictions that do not participate in the automatic exchange under the standard.

Single Global Standard for Automatic Exchange (“GATCA”)

Under GATCA jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Part I of this report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

The Report sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

To prevent taxpayers from circumventing the CRS it is specifically designed with a broad scope across three dimensions:

  1. The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
  2. The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
  3. Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.

The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.

If CRS and IGAs are Universally Adopted, Then Why is the Multilateral Convention on Mutual Administrative Assistance in Tax Matters Necessary?

Both the CRS model, which is currently being developed by the OECD with G20 countries, and the IGAs are based on the automatic exchange of information from the tax administration of one country to the tax administration of the residence country.  As with other forms of exchange of information, a legal basis is needed to carry out automatic exchange. While bilateral treaties such as those based on Article 26 of the OECD Model Tax Convention would permit such exchanges, it may be more efficient to implement a single global standard through a multilateral instrument.  See OECD Information Brief

Global Forum Peer Reviews and Monitoring Of Automatic Exchange

G20 governments have mandated the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes to monitor and review implementation of the standard.  More than 60 countries and jurisdictions of the 121 Global Forum members have now committed to early adoption of the standard, and additional members are expected to join this group in the coming months. See the link for Country Peer Reviews and the Global Forum list of ratings chart.

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Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

34 chapters by 50 experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.

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SunTrust Bank Pays $1.2 Billion for Mortgage and Foreclosure Abuses, Non-Prosecution Agreement

Posted by William Byrnes on July 3, 2014


On July 3, Sun Trust resolved the criminal investigation into its “Home Affordable Modification Program” (HAMP) by agreeing to pay $320 million.  Less than a month ago, SunTrust Mortgage Inc. (SunTrust) entered into a $968 million consent judgment to address mortgage origination, servicing, and foreclosure abuses, announced the  Justice Department, Department of Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau (CFPB), along with 49 state attorneys general and the District of Columbia’s attorney general.

“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” Attorney General Eric Holder said. “From mortgage origination to servicing to securitization, the Department of Justice is attacking every facet of conduct that led to the Great Recession. We will continue to hold accountable financial institutions that, in the pursuit of their own financial interests, misuse public funds and cause harm to hardworking Americans. We expect that there will be more cases like this to come.”

“Deceptive and illegal mortgage servicing practices have pushed families into foreclosure and devastated communities across the nation,” said CFPB Director Richard Cordray.  “Today’s action will help homeowners and consumers harmed by SunTrust’s unlawful foreclosure practices.  The Consumer Bureau will continue to investigate mortgage servicers that mistreat consumers, and we will not hesitate to take action against any company that violates our new servicing rules.”

What is HAMP?

The federal government launched HAMP as an opportunity for homeowners in dire straits to save their homes from foreclosure.  However, SunTrust Mortgage, rather than assist homeowners in need, financially ruined many through an utter dereliction of its HAMP program. SunTrust Banks, Inc. received $4.85 billion in federal taxpayer funds through the U.S. Department of the Treasury Troubled Asset Relief Program (TARP) in 2008.

What SunTrust did? 

  • Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust simply placed piles of unopened homeowners’ HAMP applications and paperwork on an office floor until at one point, the floor buckled under the sheer weight of the document packages.  Documents and paperwork were lost.
  • SunTrust issued “mass denials” to HAMP applicants and lied to the Treasury Department about the reasons for the denials. SunTrust’s statements to customers were false.
  • SunTrust improperly commenced foreclosure proceedings on homeowners in active HAMP trial periods, and some of those homeowners saw their homes listed by SunTrust for sale in local newspapers.
  • Rather than reviewing HAMP applications in 20 days and rendering modification decisions within an “as advertised” three- to four-month trial period, in the worst cases, some homeowners were confined to extended trial periods of two or more years.
  • SunTrust misreported current borrowers as delinquent to major credit bureaus.
  • SunTrust denied HAMP modifications to eligible homeowners and instead placed the homeowners in alternative, private modifications that were less favorable to borrowers.
  • SunTrust improperly capitalized amounts of interest onto borrowers’ unpaid principal balances.
  • Other borrowers who were transferred from SunTrust to another servicer while on active HAMP trial modifications were penalized.
  • SunTrust admitted that between January 2006 and March 2012, it originated and underwrote FHA-insured mortgages that did not meet FHA requirements, that it failed to carry out an effective quality control program to identify non-compliant loans, and that it failed to self-report to HUD even the defective loans it did identify.
  • SunTrust also admitted that numerous audits and other documents disseminated to its management between 2009 and 2012 described significant flaws and inadequacies in SunTrust’s origination, underwriting, and quality control processes, and notified SunTrust management that as many as 50% or more of SunTrust’s FHA-insured mortgages did not comply with FHA requirements.
  • SunTrust failed to promptly and accurately apply payments made by borrowers, and charged unauthorized fees for default-related services.
  • SunTrust failed to provide accurate information about loan modification and other loss-mitigation services, failed to properly process borrowers’ applications and calculate their eligibility for loan modifications, and provided false or misleading reasons for denying loan modifications.
  • Engaged in illegal foreclosure practices by providing false or misleading information to consumers about the status of foreclosure proceedings where the borrower was in good faith actively pursuing a loss mitigation alternative also offered by SunTrust.
  • SunTrust robo-signed foreclosure documents, including preparing and filing affidavits whose signers had not actually reviewed any information to verify the claims.

Read about the $968 million consent judgment at CFSB and DOJ.

Read about the $320 million non-prosecution agreement at SIGTARP.

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IRS Creates New 3 Page 1023-EZ for Small Charities Apply for Tax Exemption

Posted by William Byrnes on July 3, 2014


On Monday July 1, the IRS released its new, short application form for small charities to apply for 501(c)(3) tax-exempt status.  The new Form 1023-EZ is three pages long (instructions link is here), compared with the standard 26-page Form 1023.

As many as 70% of all charity applicants for tax exemption will qualify to use the new streamlined three page form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.  The IRS created a Q&A worksheet to help an organization’s representative determine if it can use the new 1042-EZ: link available here:

Question 1: Do you project that your annual gross receipts will exceed $50,000 in any of the next 3 years? (Gross receipts are the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses. You should consider this year and the next two years.) 

Question 2: Do you have total assets in excess of $250,000? (Total assets includes cash, accounts receivable, inventories, bonds and notes receivable, corporate stocks, loans receivable, other investments, depreciable and depletable assets, land, buildings, equipment, and any other assets.)

“Previously, all of these groups went through the same lengthy application process — regardless of size,” aid IRS Commissioner John Koskinen. “It didn’t matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog. Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months.  There are more than a million 501(c)(3) organizations recognized by the IRS.

The Form 1023-EZ must be filed using pay.gov, and a $400 user fee is due at the time the form is submitted. Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40, posted today on IRS.gov.

For a history of US tax treatment of charity, please read http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044  This article studies the American political debate on the charitable tax exemption from 1864 to 1969, in particular, the debate regarding philanthropic, private foundations.

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2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  2014 expanded sections on Limitations on Loss Deductions, Charitable Gifts, Reverse Mortgages, and REITs.

 

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20 jurisdictions recognized by the US but not by FATCA

Posted by William Byrnes on July 2, 2014


Originally posted on GATCA:

Here is a list of “Dependencies and Areas of Special Sovereignty” recognized by the US http://www.state.gov/s/inr/rls/10543.htm#note5

that have not been recognized in the context of FATCA i.e. do not appear on the IRS list of Jurisdictions for the purposes of FATCA:

http://www.irs.gov/pub/irs-pdf/p5118a.pdf

Akrotiri UK dependency
Ashmore and Cartier Islands Australian dependency
Baker Island US dependency
Clipperton Island French dependency
Coral Sea Islands Australian dependency
Dhekelia UK dependency
Howland Island US dependency
Jan Mayen Norway  dependency
Jarvis Island US dependency
Johnston Atoll US dependency
Kingman Reef US dependency
Midway Islands US dependency
Navassa Island US dependency
Palmyra Atoll US dependency
Paracel Islands
Spratly Islands
Svalbard Norway dependency
Wake Island US dependency

This amounts to 19 jurisdictions, 10 of which are non-US.

Moreover, the Sovereign State of Kosovo also does not appear on this list

http://www.irs.gov/pub/irs-pdf/p5118a.pdf

However, that is probably because Kosovo does not yet have a ISO 3166-1 Code.

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FATCA Expanded Affiliated Group (EAG) by Country – the FFI List

Posted by William Byrnes on July 2, 2014


3,778 Lead Entities of EAGs among the approximately 88,000 FFI registrations from 250 countries.  Haydon Perryman, FATCA Compliance expert of Strevus, and I are undertaking an analysis of this July 1st FATCA FFI list release by country and by IGA, and now by EAG.  Haydon has put together the below chart based upon the excel formulae he created.  Check out Haydon Perryman’s FATCA blog at http://haydonperryman.wordpress.com/

FATCA EAG Definition

The FFI and its branches and affiliates are defined as an “expanded affiliated group” (“EAG”).  An entity is a part of an EAG if it is affiliated with a common parent that directly or indirectly owns over 50% of the stock by vote and value of such corporation, or in the case of a partnership or non-corporate entity, owns over 50% by value of the beneficial interest of such partnership or non-corporate entity.[1]

Subject to certain phase-in provisions regarding “Limited Branches” and “Limited Affiliates, discussed below, each FFI that is a member of an EAG must obtain the status of either a PFFI or RDCFFI before any of the other group members are able to obtain the benefit of either  such status.  Said another way, one bad apple poisons the barrel, and leads to FATCA withholding for all.

Except to the extent that the rules allowing limited branches and limited affiliates apply (described below the chart), each member of an EAG (including all of its branches, units, offices, and divisions) must conduct due diligence on its accounts, enact FATCA policies and procedures, abide by the terms of the FFI-agreement, and close U.S. accounts if the holder fails to provide required disclosure and reporting information.

Model 1A IGA Model 1B IGA Model 2 IGA No IGA US Grand Total
Andorra 4 4
Angola 2 2
Anguilla 3 3
Antigua and Barbuda 1 1
Argentina 17 17
Armenia 2 2
Aruba 1 1
Australia 52 52
Austria 71 71
Bahamas 23 23
Bahrain 27 27
Bangladesh 22 22
Barbados 7 7
Belarus 1 1
Belgium 12 12
Belize 5 5
Benin 1 1
Bermuda 103 103
Bolivia, Plurinational State Of 3 3
Botswana 3 3
Brazil 51 51
Brunei Darussalam 2 2
Bulgaria 4 4
Cambodia 2 2
Canada 92 92
Cayman Islands 813 813
Chile 26 26
China 3 3
Colombia 7 7
Cook Islands 36 36
Costa Rica 15 15
Croatia 1 1
Curacao 13 13
Cyprus 12 12
Czech Republic 3 3
Denmark 10 10
Djibouti 1 1
Dominica 1 1
Dominican Republic 2 2
Ecuador 4 4
Egypt 12 12
El Salvador 4 4
Finland 13 13
France 106 106
Georgia 2 2
Germany 65 65
Ghana 4 4
Gibraltar 1 1
Greece 12 12
Guatemala 10 10
Guernsey 98 98
Guyana 2 2
Haiti 1 1
Honduras 6 6
Hong Kong 77 77
Hungary 4 4
Iceland 1 1
India 1 1
Indonesia 9 9
Iraq 3 3
Ireland 37 37
Isle of Man 16 16
Israel 24 24
Italy 33 33
Jamaica 6 6
Japan 167 167
Jersey 92 92
Jordan 10 10
Kazakhstan 9 9
Kenya 11 11
Korea, Republic of 21 21
Kuwait 15 15
Latvia 4 4
Lebanon 18 18
Libya 2 2
Liechtenstein 11 11
Luxembourg 166 166
Macao 2 2
Malawi 1 1
Malaysia 29 29
Malta 19 19
Marshall Islands 3 3
Mauritius 16 16
Mexico 14 14
Monaco 1 1
Mongolia 3 3
Morocco 10 10
Mozambique 1 1
Namibia 4 4
Netherlands 62 62
New Zealand 12 12
Nicaragua 3 3
Nigeria 12 12
Norway 15 15
Oman 3 3
Pakistan 14 14
Panama 32 32
Papua New Guinea 1 1
Peru 8 8
Philippines 15 15
Poland 12 12
Portugal 14 14
Qatar 8 8
Romania 4 4
Russian Federation 42 42
Saint Kitts and Nevis 4 4
Saint Lucia 1 1
Saint Vincent and The Grenadines 2 2
San Marino 5 5
Saudi Arabia 1 1
Serbia 1 1
Seychelles 1 1
Sierra Leone 1 1
Singapore 17 17
Slovenia 3 3
South Africa 16 16
Spain 41 41
Sri Lanka 3 3
Sweden 20 20
Switzerland 157 157
Taiwan 41 41
Tajikistan 1 1
Tanzania, United Republic Of 1 1
Thailand 22 22
Trinidad and Tobago 7 7
Turkey 11 11
Uganda 1 1
Ukraine 3 3
United Arab Emirates 14 14
United Kingdom 290 290
United States 101 101
Uruguay 7 7
Venezuela, Bolivarian Republic Of 4 4
Viet Nam 21 21
Virgin Islands (British) 85 85
WEST BANK AND GAZA 1 1
Yemen 3 3
Zambia 1 1
Grand Total 1847 813 655 362 101 3778

 

Limited Branches and Affiliates Exceptions Under Regs

A FFI is, however, allowed to be a PFFI even if one or more of its branches cannot satisfy all of the requirements of an FFI-agreement under important exceptions to the general rule regarding “limited branch” and “limited FFI affiliates”.

An FFI is permitted to obtain “participating FFI” status if one or more of its branches are non-compliant under the “limited branch” exception. The limited branch exception applies to those FFIs that are in a jurisdiction that has applicable law that prohibits the FFI from reporting, closing, or transferring U.S. accounts, or withholding, closing, blocking, or transferring recalcitrant or nonparticipating FFI accounts. In such case, the limited branch is treated as a “nonparticipating FFI” even though it is an affiliated branch of the “participating FFI.” The other branches with “participating FFI” status must withhold on payments to the limited branch. The limited branch must not open U.S. accounts and must identify itself as a “nonparticipating FFI” to withholding agents.

The exception to the EAG requirements for “limited FFI” affiliates is similar to the regulatory scheme for limited branches. Under the relevant transition rule, a “participating FFI” may be permitted to have an affiliated FFI that is not compliant with FATCA until December 31, 2015 provided that such affiliates are separately identified as a nonparticipating FFI and the PFFI agrees to withhold on payments it makes to, or receives on behalf of, that branch or affiliate and agrees to report (or provide sufficient information to its U.S. withholding agents to allow them to report) payments made to these limited branches and affiliates as required on Forms 8966 or 1042/1042-S.

A Reporting Model IGA FFI may continue to treat branches and affiliates as compliant under the limited branch and limited FFI exceptions even after the expiration of the transitional rule, provided that the branch or affiliate is still unable to comply with FATCA due to restrictions under local law and the Reporting Model FFI continues to comply with its obligations under the IGA with respect to such limited branches or affiliates.

 

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[1] 26 U.S. Code § 1471 – Withholdable payments to foreign financial institutions

(e) Affiliated groups (1) In general

The requirements of subsections (b) and (c)(1) shall apply—

(A) with respect to United States accounts maintained by the foreign financial institution, and

(B) except as otherwise provided by the Secretary, with respect to United States accounts maintained by each other foreign financial institution (other than any foreign financial institution which meets the requirements of subsection (b)) which is a member of the same expanded affiliated group as such foreign financial institution.

(2) Expanded affiliated group

For purposes of this section, the term “expanded affiliated group” means an affiliated group as defined in section 1504 (a), determined—

(A) by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and

(B) without regard to paragraphs (2) and (3) of section 1504 (b).

A partnership or any other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity is controlled (within the meaning of section 954 (d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence).

 

26 U.S. Code § 1504 – Definitions

(a) Affiliated group defined

For purposes of this subtitle—

(1) In general

The term “affiliated group” means—

(A) 1 or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if—

(B)

(i) the common parent owns directly stock meeting the requirements of paragraph (2) in at least 1 of the other includible corporations, and

(ii) stock meeting the requirements of paragraph (2) in each of the includible corporations (except the common parent) is owned directly by 1 or more of the other includible corporations.

(2) 80-percent voting and value test

The ownership of stock of any corporation meets the requirements of this paragraph if it—

(A) possesses at least 80 percent of the total voting power of the stock of such corporation, and

(B) has a value equal to at least 80 percent of the total value of the stock of such corporation.

 

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July 1st FATCA FFI List Analysis by Country and by IGA

Posted by William Byrnes on July 1, 2014


Haydon Perryman, FATCA Compliance expert of Strevus, and I are undertaking an analysis of this July 1st FATCA FFI list release by country and by IGA.  Haydon has put together the below hard work of the list based upon the excel formulae he created.  (Updated with comments as of 19:00 Washington, D.C. time).  Check out Haydon Perryman’s blog at http://haydonperryman.wordpress.com/

What I find surprising thus far is that I thought (as did many large firm attorneys) many, many more registrations would have pushed themselves through the keyhole.  I was thinking in the range of 100,000 to 110,000 would be registered for the July 1 FFI list.  Only 10,000 additional registrations was not even in my lowest estimates.  I wouldn’t call 88,000 FFI registrations a great success at this stage, considering that nearly 150 countries do not have an IGA and thus FATCA 30% withholding starts today.  While the IRS suggested a 500,000 potential FFI registration figure, many industry stakeholders suggest that 800,000 – 900,000 firms fall under the expansive definition of financial institution.

The 82,994 FFIs (approx. 95%) from the 98 IGA countries registration is due by December 31.  Only 4,318 FFI (5%) registered from the remaining 152 countries.  We do not know what FFIs may have registered between June 3rd and now because that will fall into the August list).  Still, based on the current July 1st figures, FATCA registration (indicative of compliance) in a best case scenario is running at less than 20%.   It may be as low as 10% FFI registration thus far based on the what industry stakeholders think is more likely the range.

Why is the Range for Potential FFI Registration so Expansive?

Given the broad definition of financial institution (explained below) that requires a FATCA GIIN for the W-8BEN-E or other appropriate W-8, such as W-8IMY,  the UK HMRC estimated that, even with its IGA and accompanying local regulations, 75,000 UK entities are impacted by FATCA.  Probably, though not clearly stated by the HMRC, these entities and firms need to register for a GIIN.  But only 6,994 have registered from the UK, and only 730 additional since the June 2nd list (of 6,264).  Granted the UK FFI has until October 25th pursuant to HMRC announcement (albeit January 1st under the FATCA regulations).  If the UK has 75,000 or even just half that entities requiring FFI registration, then extrapolated among other large and sophisticated financial service economies like Japan, China, Germany etc – clearly, more than 500,000 entities will need to inevitably register.   The question is: how many more?

What is the Definition of Financial Institution?

The definition of ‘financial institution’ is very broad.  Thus, entities and firms that may not traditionally (such as a banking enterprise or investment fund) be considered a financial institution are subject to FATCA registration and reporting – such as trust companies, certain insurance companies, holding companies, treasury centers.  Moreover, the industry, especially the trust industry, is experiencing some confusion over which entities must register as an FFI, and which do not need to register, or are instead an NFFE.

FFIs are primarily banking and financial institutions, as well as certain investment entities, which are defined by FATCA and separated into three broad categories:  (i) primarily traditional banks that accept deposits and perform related banking services in their ordinary course of business, (ii) entities  a substantial part of the business of which  involves  holding financial assets for others, and (iii) entities engaged in the business of investing, reinvesting, and trading in securities, partnership interests, commodities, derivatives, and other passive financial assets.

The first category of FFI describes traditional banks. This FFI is defined as a financial institution that accepts deposits in the ordinary course of a banking or similar business. An entity is engaged in a “banking or similar business” if the entity:

  1. accepts deposits or similar investments of funds;
  2. makes personal, mortgage, industrial, or other loans;
  3. provides credit extension;
  4. purchases, sells, discounts, or negotiates account receivables, installment obligations, notes, drafts, checks, bills of exchange, acceptances, or other evidences of indebtedness;
  5. issues letters of credit and negotiates drafts drawn on accounts;
  6. provides trust or fiduciary services;
  7. finances foreign exchange transactions; or
  8. enters into, purchases, or disposes of finance leases or leased assets.

The second category of FFI captures “asset holding” companies. This type of FFI holds financial assets for the account of others as a “substantial” portion of its business.  An entity is an asset holding company if more than 20 percent of its gross income is from holding financial assets and related financial services during a three-year period ending on December 31 of the year preceding that in which the determination is made (or the period of the entity’s existence, if shorter).

The final category of FFI captures “investment funds”, and is broadly defined.  Thus, this category includes certain securitization vehicles, certain pension funds, and can potentially include certain other private structures that hold investments such as trusts and underlying holding companies.  This category of FFI is primarily engaged in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including futures or forward contracts or options).  An investment entity is primarily engaged in one or more of the following activities:

  1. trading in money market instruments, foreign currency, foreign exchange, interest rates, index instruments, transferable securities, or commodity futures;
  2. managing individual or collective portfolios;
  3. investing, administering or managing funds, money, or financial assets on behalf of others; or
  4. functioning as a collective investment vehicle, mutual fund, exchange traded fund, private equity fund, hedge fund, venture capital fund, leveraged buyout fund, or any similar investment vehicle.

An entity is primarily engaged in these activities if more than 50% of its gross income is from such activities during a three-year period.

Example of an Investment Advisor.  A Fund Manager is an investment entity that organizes and manages various types of funds including Fund A. Fund A invests primarily in equities. An Investment Advisor (a foreign entity) is hired by the Fund Manager to advise and provide discretionary management of a portion of the financial assets held by Fund A. More than 50% of the Investment Advisor’s gross income was earned for the last three years from providing similar services. The Investment Advisor is an investment entity as described in this section and an FFI as well since it primarily conducts a business of managing financial assets on behalf of clients.

Example of a Trust managed by a Trust Company. On January 1, 2013, a Trust (a nongrantor foreign trust) was formed by X (an individual) for the benefit of his or her children. The Trustee (a Trust Company) was appointed by X to act as the Trustee.  A Trust Company is an FFI.  Under the terms of the Trust Instrument, the Trust Company manages the assets of the Trust as Trustee for the benefit of X’s children.  Because the Trust is managed by a FFI (the Trust Company), the Trust is an investment entity, and an FFI.

Trust compliance and FATCA expert Peter Cotorceanu (and Lexis author) has raised four interesting issues with the last example, being:

  • Is the “Managed By” test met if some but not all a trust managers are depository institutions, custodial institutions, specified insurance companies, or Type A IEs, e.g., a trust with a commercial trust company serving a co-trustee with an individual?
  • Is the “Managed By” test met if some but not all of a trust’s investments are managed by depository institutions, custodial institutions, specified insurance companies, or IEs, e.g.,  a trust with one account managed by a bank and other accounts managed by an individual?
  • How is a trust classified if it meets the “Managed By” test for only part of a year, e.g., because a commercial trust company is replaced by an individual as trustee, or a bank is replaced by an individual as asset manager?
  • Does a trust holding, its only asset the share of an underlying company (“UC”), meet the “Managed By” test if the UC’s assets are professionally managed but the trust is not (i.e., the trustee is an individual)?

FATCA IGA FACTS as of July 1st at World Cup Game time USA Match (4 pm Washington, D.C.)

IGAs: 98

Model 1: 85

Model 2: 13

Non-IGAs: 250 – 98 = 152 countries for withholding from July 1, 2014

Registered:  87,993 (July 1st) (an increase of approximately 10,000 from 77,353 of June 2nd) FFI/branches from 250 countries/jurisdictions

Jurisdiction July FFI # IGA Scenario Signed/Substance Date
Afghanistan 8 No IGA
Albania 16 No IGA
Algeria 9 Model 1A IGA Substance June 30, 2014
Andorra 35 No IGA
Angola 10 No IGA
Anguilla 120 No IGA
Antigua and Barbuda 39 Model 1A IGA Substance June 03, 2014
Argentina 401 No IGA
Armenia 34 Model 2 IGA Substance May 08, 2014
Aruba 16 No IGA
Australia 2,073 Model 1A IGA Signed April 28, 2014
Austria 3,010 Model 2 IGA Signed April 29, 2014
Azerbaijan 34 Model 1A IGA Substance May 16, 2014
Bahamas 646 Model 1A IGA Substance April 17, 2014
Bahrain 165 Model 1A IGA Substance June 30, 2014
Bangladesh 81 No IGA
Barbados 146 Model 1A IGA Substance May 27, 2014
Belarus 68 Model 1A IGA Substance June 06, 2014
Belgium 256 Model 1A IGA Signed April 23, 2014
Belize 135 No IGA
Benin 8 No IGA
Bermuda 1,579 Model 2 IGA Signed December 19, 2013
Bhutan 1 No IGA
Bosnia and Herzegovina 23 No IGA
Botswana 20 No IGA
Brazil 2,362 Model 1A IGA Substance April 02, 2014
British Indian Ocean Territory 1 No IGA
Brunei Darussalam 21 No IGA
Bulgaria 96 Model 1A IGA Substance April 23, 2013
Burkina Faso 6 No IGA
Burundi 3 No IGA
Cambodia 82 No IGA
Cameroon 10 No IGA
Canada 2,566 Model 1A IGA Signed February 05, 2014
Cape Verde 6 Model 1A IGA Substance June 30, 2014
Cayman Islands 17,207 Model 1B IGA Signed November 29, 2013
Central African Republic 2 No IGA
Chad 4 No IGA
Chile 342 Model 2 IGA Signed March 05, 2014
China 213 Model 1A IGA Substance June 26, 2014
Christmas Island 1 No IGA
Colombia 184 Model 1A IGA Substance April 23, 2014
Comoros 1 No IGA
Congo 5 No IGA
Cook Islands 87 No IGA
Costa Rica 116 Model 1A IGA Signed November 26, 2013
Cote d’Ivoire 18 No IGA
Croatia 67 Model 1A IGA Substance April 02, 2014
Curacao 189 Model 1A IGA Substance April 30, 2014
Cyprus 330 Model 1A IGA Substance April 22, 2014
Czech Republic 115 Model 1A IGA Substance April 02, 2014
Denmark 204 Model 1A IGA Signed November 19, 2012
Djibouti 2 No IGA
Dominica 18 Model 1A IGA Substance June 19, 2014
Dominican Republic 75 Model 1A IGA Substance June 30, 2014
Ecuador 27 No IGA
Egypt 109 No IGA
El Salvador 41 No IGA
Equatorial Guinea 1 No IGA
Estonia 33 Model 1A IGA Signed April 11, 2014
Falkland Islands (Malvinas) 1 No IGA
Fiji 5 No IGA
Finland 482 Model 1A IGA Signed March 05, 2014
France 2,422 Model 1A IGA Signed November 14, 2013
French Polynesia 3 No IGA
French Southern Territories 1 No IGA
Gabon 4 No IGA
Gambia 11 No IGA
Georgia 26 Model 1A IGA Substance June 12, 2014
Germany 2,894 Model 1A IGA Signed May 31, 2013
Ghana 51 No IGA
Gibraltar 116 Model 1A IGA Signed May 08, 2014
Greece 103 No IGA
Greenland 1 Model 1A IGA Substance June 30, 2014
Grenada 33 Model 1A IGA Substance June 16, 2014
Guadeloupe 1 No IGA
Guam 4 US Territory
Guatemala 81 No IGA
Guernsey 2,585 Model 1A IGA Signed December 13, 2013
Guinea 7 No IGA
Guyana 7 Model 1A IGA Substance June 24, 2014
Haiti 13 Model 1A IGA Substance June 30, 2014
Honduras 50 Model 1A IGA Signed March 31, 2014
Hong Kong 2,008 Model 2 IGA Substance May 09, 2014
Hungary 115 Model 1A IGA Signed February 04, 2014
Iceland 12 No IGA
India 321 Model 1A IGA Substance April 11, 2014
Indonesia 351 Model 1A IGA Substance May 04, 2014
Iraq 49 Model 2 IGA Substance June 30, 2014
Ireland 2,007 Model 1A IGA Signed January 23, 2013
Isle of Man 355 Model 1A IGA Signed December 13, 2013
Israel 352 Model 1A IGA Substance June 30, 2014
Italy 587 Model 1A IGA Signed January 10, 2014
Jamaica 42 Model 1A IGA Signed May 01, 2014
Japan 3,390 Model 2 IGA Signed June 11, 2013
Jersey 1,974 Model 1A IGA Signed December 13, 2013
Jordan 48 No IGA
Kazakhstan 96 No IGA
Kenya 54 No IGA
Kuwait 84 Model 1A IGA Substance May 01, 2014
Kyrgyzstan 29 No IGA
Lao People’s Democratic Republic 13 No IGA
Latvia 50 Model 1A IGA Signed June 27, 2014
Lebanon 122 No IGA
Lesotho 2 No IGA
Liberia 29 No IGA
Liechtenstein 291 Model 1A IGA Signed May 19, 2014
Lithuania 29 Model 1A IGA Substance April 02, 2014
Luxembourg 4,061 Model 1A IGA Signed March 28, 2014
Macao 64 No IGA
Madagascar 7 No IGA
Malawi 10 No IGA
Malaysia 437 Model 1A IGA Substance June 30, 2014
Maldives 6 No IGA
Mali 5 No IGA
Malta 348 Model 1A IGA Signed December 16, 2013
Marshall Islands 80 No IGA
Martinique 1 No IGA
Mauritania 6 No IGA
Mauritius 872 Model 1A IGA Signed December 27, 2013
Mexico 410 Model 1A IGA Signed April 09, 2014
Monaco 105 No IGA
Mongolia 15 No IGA
Montenegro 7 Model 1A IGA Substance June 30, 2014
Montserrat 12 No IGA
Morocco 133 No IGA
Mozambique 15 No IGA
Myanmar 6 No IGA
Namibia 26 No IGA
Nepal 33 No IGA
Netherlands 2,280 Model 1A IGA Signed December 18, 2013
New Caledonia 5 No IGA
New Zealand 396 Model 1A IGA Signed June 12, 2014
Nicaragua 15 Model 2 IGA Substance June 30, 2014
Niger 4 No IGA
Nigeria 76 No IGA
Norway 349 Model 1A IGA Signed April 15, 2013
Oman 25 No IGA
Pakistan 89 No IGA
Panama 484 Model 1A IGA Substance May 01, 2014
Papua New Guinea 4 No IGA
Paraguay 17 Model 2 IGA Substance June 06, 2014
Peru 172 Model 1A IGA Substance May 01, 2014
Philippines 178 No IGA
Poland 180 Model 1A IGA Substance April 02, 2013
Portugal 287 Model 1A IGA Substance April 02, 2014
Puerto Rico 4 US Territory
Qatar 52 Model 1A IGA Substance April 02, 2014
Reunion 1 No IGA
Romania 114 Model 1A IGA Substance April 02, 2014
Russian Federation 729 No IGA
Rwanda 9 No IGA
Saint Kitts and Nevis 106 Model 1A IGA Substance June 04, 2014
Saint Lucia 66 Model 1A IGA Substance June 12, 2014
Saint Martin (French part) 3 No IGA
Saint Pierre and Miquelon 1 No IGA
Saint Vincent and The Grenadines 124 Model 1A IGA Substance June 02, 2014
Samoa 51 US Territory
San Marino 15 Model 2 IGA Substance June 30, 2014
Saudi Arabia 21 Model 1A IGA Substance June 24, 2014
Senegal 10 No IGA
Serbia 32 Model 1A IGA Substance June 30, 2014
Seychelles 43 Model 1A IGA Substance May 28, 2014
Sierra Leone 9 No IGA
Singapore 1,072 Model 1A IGA Substance May 05, 2014
Sint Maarten (Dutch part) 17 No IGA
Slovakia 63 Model 1A IGA Substance April 11, 2014
Slovenia 32 Model 1A IGA Signed June 02, 2014
Solomon Islands 3 No IGA
South Africa 395 Model 1A IGA Signed June 09, 2014
South Sudan 5 No IGA
Spain 1,227 Model 1A IGA Signed May 14, 2013
Sri Lanka 42 No IGA
Suriname 9 No IGA
Swaziland 5 No IGA
Sweden 414 Model 1A IGA Substance April 24, 2014
Switzerland 4,279 Model 2 IGA Signed February 14, 2013
Taiwan 481 Model 2 IGA Substance June 23, 2014
Tajikistan 19 No IGA
Thailand 823 Model 1A IGA Substance June 24, 2014
Timor-Leste 2 No IGA
Togo 6 No IGA
Tonga 2 No IGA
Trinidad and Tobago 59 No IGA
Tunisia 10 No IGA
Turkey 210 Model 1A IGA Substance June 03, 2014
Turkmenistan 1 Model 1A IGA Substance June 03, 2014
Turks and Caicos Islands 35 Model 1A IGA Substance May 12, 2014
Uganda 19 No IGA
Ukraine 187 Model 1A IGA Substance June 28, 2014
United Arab Emirates 204 Model 1A IGA Substance May 21, 2014
United Kingdom 6,994 Model 1A IGA Signed September 12, 2012
United States 620 US
Uruguay 142 No IGA
Uzbekistan 2 No IGA
Vanuatu 5 No IGA
Viet Nam 129 No IGA
Virgin Islands (British) 2,373 Model 1B IGA Signed June 30, 2014
Wallis and Futuna 1 No IGA
Yemen 18 No IGA
Zambia 13 No IGA
Zimbabwe 6 No IGA
Other 32 No IGA January 01, 1904
Korea, Republic of 448 Model 1A IGA Substance April 02, 2014
Bolivia, Plurinational State Of 31 No IGA
Congo, Democratic Republic Of The 9 No IGA
Macedonia, The Former Yugoslav Republic Of 18 No IGA
Moldova, Republic Of 20 Model 2 IGA Substance June 30, 2014
Venezuela, Bolivarian Republic Of 49 No IGA
Tanzania, United Republic Of 16 No IGA
Libya 7 No IGA
Bonaire, Sint Eustatius And Saba 12 No IGA
Korea, Democratic People’s Republic Of 1 No IGA
Virgin Islands (U.S.) 2 US Territory
Guinea-Bissau 1 No IGA
Kiribati 1 No IGA
Sao Tome and Principe 1 No IGA
WEST BANK AND GAZA 23 No IGA
Grand Total         87,993
IRS Registered FFI List (Sum of Registrations) July ’14# County #
Model 1A IGA         48,175 85
Model 1B IGA         19,580 2
Model 2 IGA         15,239 13
US              620 1
US Territory                61 5 Note 1
No IGA           4,318 144 Note 2
Total         87,993 250 Notes 1, 2 & 3
Non IGA           4,318                 144
Non IGA% 5% 58%
IGA         82,994                   98
IGA% 94% 39%
US and US Territories              681                     6
1% 2%
There is only 1 jurisdiction with an IGA that has zero registrations: Kosovo, implying that registration is a lead indicator of an IGA being signed
Note 1
This does not include:
Baker Island, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, Midway Islands, Navassa Island, Palmyra Atoll, Wake Island
Note 2
This does not include:
Akrotiri, Ashmore and Cartier Islands, Clipperton Island, Coral Sea Islands, Dhekelia, Jan Mayen, Paracel Islands, Spratly Islands, Svalbard
Note 3
WEST BANK AND GAZA is not on the ISO list provided by the IRS. However, the IRS have allowed use of ISO 3166-1 Code “275″ for this territory on their list of approved FFIs.
FYI: The US Department of State does not recognize Palestine, much less Gaza and the West Bank.  But since the IRS does for purposes of FATCA, these are included for completeness.

book coverComplying with FATCA?

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

 

Model 1 IGA – 34 (followed by number of registered FFIs as of July 1st at 1 pm Washington, D.C.)

  1. Australia (4-28-2014)
  2. Belgium (4-23-2014)
  3. British Virgin Islands (6-30-2014) <– moved from below list
  4. Canada (2-5-2014)
  5. Cayman Islands (11-29-2013)
  6. Costa Rica (11-26-2013)
  7. Denmark (11-19-2012)
  8. Estonia (4-11-2014)
  9. Finland (3-5-2014)
  10. France (11-14-2013)
  11. Germany (5-31-2013)
  12. Gibraltar (5-8-2014)
  13. Guernsey (12-13-2013)
  14. Hungary (2-4-2014)
  15. Honduras (3-31-2014)
  16. Ireland (1-23-2013)
  17. Isle of Man (12-13-2013)
  18. Israel (6-30-2014) <– moved from below list
  19. Italy (1-10-2014)
  20. Jamaica (5-1-2014)
  21. Jersey (12-13-2013)
  22. Latvia (6-27-2014):
  23. Liechtenstein (5-19-2014)
  24. Luxembourg (3-28-2014)
  25. Malta (12-16-2013)
  26. Mauritius (12-27-2013)
  27. Mexico (4-9-2014)
  28. Netherlands (12-18-2013)
  29. New Zealand (6-12-2014)
  30. Norway (4-15-2013)
  31. Slovenia (6-2-2014)
  32. South Africa (6-9-2014)
  33. Spain (5-14-2013)
  34. United Kingdom (9-12-2012)

Jurisdictions that have reached agreements in substance:

Model 1 IGA – 52 (followed by number of registered FFIs)

  1. Algeria (6-30-2014)  < – new entry
  2. Antigua and Barbuda (6-3-2014)
  3. Azerbaijan (5-16-2014)
  4. Bahamas (4-17-2014)
  5. Bahrain (6-30-2014) < – new entry
  6. Barbados (5-27-2014)
  7. Belarus (6-6-2014)
  8. Brazil (4-2-2014):
  9.  Bulgaria (4-23-2014)
  10. Cabo Verde (6-30-2014) <– new entry
  11. China (6-26-2014)  <– new entry
  12. Colombia (4-23-2014)
  13. Croatia (4-2-2014)
  14. Curaçao (4-30-2014)
  15. Czech Republic (4-2-2014)
  16. Cyprus (4-22-2014)
  17. Dominica (6-19-2014):
  18. Dominican Republic (6-30-2014) <– new entry
  19. Georgia (6-12-201)
  20. Greenland (6-29-2014) <– new entry
  21. Grenada (6-16-2014)
  22. Guyana (6-24-2014) <– new entry
  23. Haiti (6-30-2014) <– new entry
  24. India (4-11-2014)
  25. Indonesia (5-4-2014):
  26. Kosovo (4-2-2014)
  27. Kuwait (5-1-2014)
  28. Lithuania (4-2-2014)
  29. Malaysia (6-30-2014) <– new entry
  30. Montenegro (6-30-2014) <– new entry
  31. Panama (5-1-2014)
  32. Peru (5-1-2014):
  33. Poland (4-2-2014):
  34. Portugal (4-2-2014):
  35. Qatar (4-2-2014):
  36. Romania (4-2-2014):
  37. St. Kitts and Nevis (6-4-2014)
  38. St. Lucia (6-12-2014):
  39. St. Vincent and the Grenadines (6-2-2014)
  40. Saudi Arabia (6-24-2014):
  41. Serbia (6-30-2014)
  42. Seychelles (5-28-2014)
  43. Singapore (5-5-2014):
  44. Slovak Republic (4-11-2014)
  45. South Korea (4-2-2014)
  46. Sweden (4-24-2014)
  47. Thailand (6-24-2014):
  48. Turkey (6-3-2014)
  49. Turkmenistan (6-3-2014)
  50. Turks and Caicos Islands (5-12-2014):
  51. Ukraine (6-26-2014) < – new entry
  52. United Arab Emirates (5-23-2014)

Model 2 IGA – 5

  1. Austria (4-29-2014)
  2. Bermuda (12-19-2013)
  3. Chile (3-5-2014)
  4. Japan (6-11-2013)
  5. Switzerland (2-14-2013)

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 8

  1. Armenia (5-8-2014)
  2. Hong Kong (5-9-2014)
  3. Iraq (6-30-2014) < – new entry
  4. Moldova (6-30-2014) < – new entry
  5. Nicaragua (6-30-2014
  6. Paraguay (6-6-2014):
  7. San Marino (6-30-2014) < – new entry
  8. Taiwan (6-23-2014)

 

Posted in FATCA | Tagged: , , | 1 Comment »

BNP Paribas Pays $8.9 Billion for Sanction Violations With Iran, Sudan & Cuba

Posted by William Byrnes on June 30, 2014


$8.9 Billion Settlement of $19 Billion Possible Penalty

On June 30th, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), as part of a combined $8.9 billion settlement (settlement agreement here) with federal and state government agencies, today announced a $963 million agreement with BNP Paribas (BNPP) to settle its potential liability for apparent violations of U.S. sanctions regulations.  The $8.9 billion is the largest OFAC settlement to date.  However, the statutory maximum and base civil monetary penalties in this case were $19,272,380,006.

What Did BNP Paribas Do Exactly?

For a number of years, up to and including 2012, BNPP processed thousands of transactions to or through U.S. financial institutions that involved countries, entities, and/or individuals subject to the sanctions programs listed above.  BNPP appears to have engaged in a systematic practice, spanning many years and involving multiple BNPP branches and business lines, that concealed, removed, omitted, or obscured references to, or the interest or involvement of, sanctioned parties in U.S. Dollar Society for Worldwide Interbank Financial Telecommunication payment messages sent to U.S. financial institutions.

The specific payment practices the bank utilized in order to process sanctions-related payments to or through the United States included omitting references to sanctioned parties; replacing the names of sanctioned parties with BNPP’s name or a code word; and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions.  While these payment practices occurred throughout multiple branches and subsidiaries of the bank, BNPP’s subsidiary in Geneva and branch in Paris facilitated or conducted the overwhelming majority of the apparent violations.

How Bad Was BNP Paribas Conduct?

OFAC determined that BNPP did not voluntarily self-disclose its violations (it was a whistleblower), and that the apparent violations constitute an egregious case: BNPP’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012, including:

$8 Billion with Sudan

BNPP officials have described Darfur as a “humanitarian catastrophe” and, while discussing the Sudanese business, noted that certain Sudanese banks “play a pivotal part in the support of the Sudanese government which…has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.”  BNPP’s senior compliance personnel agreed to continue the Sudanese business and rationalized the decision by stating that “the relationship with this body of counterparties is a historical one and the commercial stakes are significant. For these reasons, Compliance does not want to stand in the way.”

BNPP processed 2,663 wire transfers totaling approximately $8,370,372,624 between September , 2005, and July 24, 2009, involving Sudan.  The total base penalty for this set of apparent violations was $16,826,707,625.  $8 billion in four years – approximately $2 billion a year.

$1 Billion with Iran

BNPP processed 318 wire transfers totaling approximately $1,182,075,543 between July 15, 2005, and November 27, 2012, involving Iran.  The total base penalty for this set of apparent violations was $2,382,634,677.

$700 Million With Cuba

BNPP processed 909 wire transfers totaling approximately $689,237,183 between July 18, 2005, and September 10, 2012.  The total base penalty for this set of apparent violations was $59,085,000.

$1.5 Million with Burma

BNPP processed seven wire transfers totaling approximately $1,478,371 between November 3, 2005, and approximately May 2009, involving Burma.  The total base penalty for this set of apparent violations was $3,952,704.

Who Was Involved?

Benjamin M. Lawsky, New York’s Superintendent of Financial Services, said, “BNPP employees – with the knowledge of multiple senior executives – engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide. As a civil regulator, we are taking action today not only to penalize the bank, but also expose and sanction individual BNPP employees for wrongdoing. In order to deter future offenses, it is important to remember that banks do not commit misconduct – bankers do.”

- COO Signed Off on Continuing Illicit Transactions at Meeting Where He Asked Minutes Not to be Taken”;

- North American Head of Ethics/Compliance wrote: “The Dirty Little Secret Isn’t So Secret Anymore, Oui?”

Did Anyone Go to Prison?

No.  No charges have been brought.

If Not Prison, Then What Was the Discipline?

Some executives were merely ‘separated’.  What does separated mean?  Asked to resign?  Awarded severance?  Kept the high salaries and bonuses derived from the illicit business – yes.  What of the COO who “signed off on continuing illicit transactions at a meeting where he asked minutes not to be taken“?  He was allowed to retire.  He keeps his pension, retirement funds, bonuses …

What BNP states: “As a result of BNP Paribas’ internal review, a number of managers and employees from relevant business areas have been sanctioned, a number of whom have left the Group.”

But what the Department of Financial Services states: At DFS’s direction, 13 individuals were terminated by or separated from the Bank as a result of the investigation, including the following senior executives:

  • George Chodron de Courcel, Group Chief Operating Officer
  • Vivien Levy-Garboua, Current Senior Advisor to the BNPP Executive Committee and Former Group Head of Compliance
  • Christopher Marks, Group Head of Debt Capital Markets
  • Dominique Remy, Group Head of Structured Finance for the Corporate Investment Bank (CIB)
  • Stephen Strombelline, Head of Ethics and Compliance for North America

In total, including those terminated, the Department of Financial Services reports that the Bank disciplined 45 employees, with levels of discipline ranging from dismissals, to cuts in compensation, demotion, and other sanctions, while 27 additional BNPP employees who would have been subject to potential disciplinary action during the investigation had already resigned.

Who Is Paying the Fine?

BNP Paribas shareholders inevitably.  No fines have been levied against the employees involved.  BNP shareholders include:

Belgian State (through SFPI (1)) 10.3%
Grand Duché de Luxembourg 1.0%
Employees 5.5%
Retail shareholders 4.9%
European institutional Investors 46.1%
Non-European institutional investors 30.0%
Other and unidentified 2.2%
Total 100%

How Will BNP Minimize the Risk of Its Doing It Again?  

Under the settlement agreement, BNPP is required to put in place and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future.  BNPP is also required to provide OFAC with copies of submissions to the Board of Governors relating to the OFAC compliance review that it will be conducting as part of its settlement with the Board of Governors.

BNP states that it has designed new robust compliance and control procedures:

  • a new department called Group Financial Security US, part of the Group Compliance function, will be headquartered in New York and will ensure that BNP Paribas complies globally with US regulation related to international sanctions and embargoes.
  • all USD flows for the entire BNP Paribas Group will be ultimately processed and controlled via the branch in New York.

Read my previous analysis warning to financial institutions about lack of education

Is AML Training Effective or Whitewashing?

Is AML Training Effective or Whitewashing? Part II

Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?

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LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide - This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

Selected Settlement Agreements:

2014 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and BNP Paribas SA

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Clearstream Banking, S.A.

2013 Information

The U.S. Department of the Treasury’s Office of Foreign Assets Control has issued a Finding of Violation to VISA International Service Association

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and the Royal Bank of Scotland plc.

2012 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and HSBC Holdings plc

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Standard Chartered Bank

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and ING Bank, N.V.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Online Micro, LLC

2011 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Sunrise Technologies and Trading Corporation

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and JPMorgan Chase Bank N.A.

2010 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Barclays Bank PLC.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Innospec, Inc

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Aviation Services International, B.V.

2009 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Lloyds TSB Bank, plc.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Credit Suisse AG.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Australia and New Zealand Banking Group, Ltd.

Posted in Compliance, Money Laundering | Tagged: , , , , , , | 5 Comments »

FATCA Corrections Released June 30th – Withholding on 160 Countries Begins July 1st

Posted by William Byrnes on June 30, 2014


What FATCA Withholding Corrections Did the IRS Publish Today? (June 30th)*

Corrections for Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities: http://www.ofr.gov/(S(4m13pp0czfmzywjl2cfjdpwn))/OFRUpload/OFRData/2014-15465_PI.pdf

Corrections for Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons, Information Reporting and Backup Withholding on Payments Made to Certain U.S. Persons, and Portfolio Interest Treatment: http://www.ofr.gov/(S(4m13pp0czfmzywjl2cfjdpwn))/OFRUpload/OFRData/2014-15466_PI.pdf

“As published, the final and temporary regulations contain a number of items that need to be corrected or clarified. Several citations and cross references are corrected.  The correcting amendments also include the addition, deletion, or modification of regulatory language to clarify the relevant provisions to meet their intended purposes or for consistency with other related provisions of these regulations. The addition of final regulatory language only includes language that was inadvertently removed in the final and temporary regulations.”

* Should out to Haydon Perryman for spotting this release (and alerting me) because Treasury did not send out an alert today on it.  Check out his blog: http://haydonperryman.wordpress.com/

Are All Systems Still Go for 30% FATCA Withholding starting tomorrow (July 1st)

Yes, FATCA goes “live” on Tuesday!  30% withholding on all withholdable payments to nonparticipating FFIs in the 160 non-IGA countries/jurisdictions as of July 1st.

What additional FFIs will be included on the July 1st list to be published tomorrow? 

FFIs that registered by June 3rd.  The IRS states the following on its FATCA Registration Portal: “the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014.”

(See Notice 2014-17, page 6: “FFIs that finalize their registrations after … June 3 may still be included on the … July 1 IRS FFI List; however, the IRS cannot provide assurance that this will be the case.”)

Most commentators expect a rush of over 300,000 FFI registrations by the end of 2014.  Some predict more than a half million entities must still register, based on the UK’s HMRC estimate that 75,000 entities are impacted by FATCA within the United Kingdom (where less than 6,300 are currently registered on the GIIN list). Withholding on IGA jurisdiction non-compliant FFIs only begins January 1st.

What about FFIs that registered on June 30th?

The IRS has allowed a 90 day safeguard for FFIs when a GIIN has been applied for but not yet received.

§1.1471-3(e)(3) Participating FFIs and registered deemed-compliant FFIs—(i) In general. … A payee whose registration with the IRS as a participating FFI or a registered deemed-compliant FFI is in process but has not yet received a GIIN may provide a withholding agent with a Form W-8 claiming the chapter 4 status it applied for and writing “applied for” in the box for the GIIN. In such case, the FFI will have 90 calendar days from the date of its claim to provide the withholding agent with its GIIN and the withholding agent will have 90 calendar days from the date it receives the GIIN to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a participating FFI or registered deemed-compliant FFI. … (emphasis added).

Follow this highlighted link to my previous analysis for completing the W-8BEN-E

When Must FFIs in IGA countries Register? 

Financial institutions (FFIs) in the 90 IGA countries have an extension to register with the IRS in order to obtain a GIIN and thus appear on the IRS’ FATCA compliant list.  FATCA 30% withholding for FFIs in these Model 1 IGA countries and jurisdictions only begins January 1, 2015.

See Reg. § 1.1471-3(d)(4)(iv)(A): § 1.1471-3(d)(4)(iv) Exceptions for payments to reporting Model 1 FFIs.— (A) For payments made prior to January 1, 2015, a withholding agent may treat the payee as a reporting Model 1 FFI if it receives a withholding certificate from the payee indicating that the payee is a reporting Model 1 FFI and the country in which the payee is a reporting Model 1 FFI, regardless of whether the certificate contains a GIIN for the payee.

In its January 6, 2014 Announcement 2014-1 (IRB 2014-2), the IRS stated:

Thus, while reporting Model 1 FIs will be able to register and obtain GIINs on or after January 1, 2014, they will not need to register or obtain GIINs until on or about December 22, 2014, to ensure inclusion on the IRS FFI list by January 1, 2015. (emphasis added)

However, at least one IGA country is suggesting an earlier (perhaps more prudent) date than December 22, 2014 for GIIN registration in order to be included on the IRS’ last 2014 FATCA compliant list.  The United Kingdom’s Law Society and Institute of Chartered Accountants in May 2014 published combined guidance to members stating:

To ensure that the registration has been processed in time for inclusion on that list the last practical date for registration is 25 October 2014.

FATCA IGA FACTS as of June 30th at 9pm Washington, D.C.

IGAs: 90

Model 1: 80

Model 2: 10

Non-IGAs: 250 – 90 = 160 countries for withholding as of June 30, 2014

Registered: 77,353 FFI/branches from 205 countries/jurisdictions*

* Haydon Perryman of Strevus and I will in the morning, as quickly as possible, undertake a count and analysis of the July 1st FFI list release.  Hopefully Treasury will release it well ahead of the USA v Belgium World Cup semi-finals game at 4pm Washington, D.C time.  Feel free to email me at williambyrnes@gmail.com if you notice any anomalies or have comments to be included in our analysis.

Model 1 IGA – 32 (followed by number of registered FFIs as of June 30th)

  1. Australia (4-28-2014): 1,865
  2. Belgium (4-23-2014): 250
  3. Canada (2-5-2014): 2,265
  4. Cayman Islands (11-29-2013): 14,837
  5. Costa Rica (11-26-2013): 123
  6. Denmark (11-19-2012): 187
  7. Estonia (4-11-2014): 27
  8. Finland (3-5-2014): 467
  9. France (11-14-2013): 2,291
  10. Germany (5-31-2013): 2,555
  11. Gibraltar (5-8-2014): 97
  12. Guernsey (12-13-2013): 2,396
  13. Hungary (2-4-2014): 102
  14. Honduras (3-31-2014): 48
  15. Ireland (1-23-2013): 1,757
  16. Isle of Man (12-13-2013): 313
  17. Italy (1-10-2014): 457
  18. Jamaica (5-1-2014): 42
  19. Jersey (12-13-2013): 1,619
  20. Latvia (6-27-2014): 41 <– moved from below list
  21. Liechtenstein (5-19-2014): 240
  22. Luxembourg (3-28-2014): 3,561
  23. Malta (12-16-2013): 236
  24. Mauritius (12-27-2013): 728
  25. Mexico (4-9-2014): 419
  26. Netherlands (12-18-2013): 2,054
  27. New Zealand (6-12-2014) 335
  28. Norway (4-15-2013): 313
  29. Slovenia (6-2-2014): 21
  30. South Africa (6-9-2014): 318  
  31. Spain (5-14-2013): 1,188
  32. United Kingdom (9-12-2012): 6,264

Model 1 IGA – 48 (followed by number of registered FFIs)

  1. Algeria (6-30-2014)  < – new entry
  2. Antigua and Barbuda (6-3-2014): 36
  3. Azerbaijan (5-16-2014): 17
  4. Bahamas (4-17-2014): 611
  5. Barbados (5-27-2014): 124
  6. Belarus (6-6-2014): 65
  7. Brazil (4-2-2014): 2,259
  8. British Virgin Islands (4-2-2014): 1,838
  9. Bulgaria (4-23-2014): 73
  10. China (6-26-2014) 212 <– new entry
  11. Colombia (4-23-2014): 173
  12. Croatia (4-2-2014): 51
  13. Curaçao (4-30-2014): 174
  14. Czech Republic (4-2-2014): 93
  15. Cyprus (4-22-2014): 280
  16. Dominica (6-19-2014): 17
  17. Dominican Republic (6-30-2014): 68 <– new entry
  18. Georgia (6-12-201): 24
  19. Greenland (6-29-2014): 1 <– new entry
  20. Grenada (6-16-2014): 32
  21. Guyana (6-24-2014) <– new entry
  22. India (4-11-2014): 247
  23. Indonesia (5-4-2014): 308
  24. Israel (4-28-2014): 322
  25. Kosovo (4-2-2014) – nil
  26. Kuwait (5-1-2014): 78
  27. Lithuania (4-2-2014): 22
  28. Panama (5-1-2014): 451
  29. Peru (5-1-2014): 165
  30. Poland (4-2-2014): 165
  31. Portugal (4-2-2014): 256
  32. Qatar (4-2-2014): 47
  33. Romania (4-2-2014): 110
  34. St. Kitts and Nevis (6-4-2014): 71
  35. St. Lucia (6-12-2014): 61
  36. St. Vincent and the Grenadines (6-2-2014): 105
  37. Saudi Arabia (6-24-2014): 18
  38. Seychelles (5-28-2014): 38
  39. Singapore (5-5-2014): 784
  40. Slovak Republic (4-11-2014): 55
  41. South Korea (4-2-2014): 397
  42. Sweden (4-24-2014): 313
  43. Thailand (6-24-2014): 768
  44. Turkey (6-3-2014): 66
  45. Turkmenistan (6-3-2014): 1  
  46. Turks and Caicos Islands (5-12-2014): 28
  47. Ukraine (6-26-2014): 106  < – new entry
  48. United Arab Emirates (5-23-2014): 136

Model 2 IGA – 5

  1. Austria (4-29-2014): 2,979
  2. Bermuda (12-19-2013): 1,243
  3. Chile (3-5-2014): 325
  4. Japan (6-11-2013): 3,252
  5. Switzerland (2-14-2013): 4,041

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 5

  1. Armenia (5-8-2014): 28
  2. Hong Kong (5-9-2014): 1,540
  3. Moldova (6-30-2014):  < – new entry
  4. Paraguay (6-6-2014): 17 
  5. Taiwan (6-23-2014): 409

 

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Did you file your FBAR today? You still have a couple hours left!

Posted by William Byrnes on June 30, 2014


The FBAR is an annual report and must be filed on or before June 30th! The FBAR must be filed electronically through FinCEN’s BSA E-Filing System.  The application to file electronically is available at http://bsaefiling.fincen.treas.gov/

Who is considered an individual filer? 

An individual filer is a natural person who owns a reportable foreign financial account or has signature authority but no financial interest in a reportable foreign financial account that
requires the filing of an FBAR for the reportable year. An individual who jointly owns an account with a spouse may file a single FBAR report as an individual filer

What if I file an FBAR with my spouse? How will I be able to meet the two-signature requirement and E-File?

FinCEN’s BSA E-File system’s capability only allows for one digital signature. Although the current FBAR instructions state that a spouse included as a joint owner, who does not file a separate FBAR, must also sign the FBAR in Item 44, the E-Filing process will not allow for both signatures on the same electronic form. So, to use the E-Filing system, a Form 114a (http://www.fincen.gov/forms/files/FBARE-FileAuth114aRecordSP.pdf ) should be completed designating which spouse will file the FBAR. The Form 114a is retained by the filer and not sent to FinCEN. The spouse designated can then use the BSA E-Filing System to E-File the FBAR.

Who Must File an FBAR?

A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year

What is a Financial Account?

A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).

What is a Financial Interest?

A United States person has a financial interest in a foreign financial account for which:

1. the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or

2. the owner of record or holder of legal title is one of the following:

a. An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;

b. A corporation in which the United States person owns directly or indirectly:

(i) more than 50 percent of the total value of shares of stock or

(ii) more than 50 percent of the voting power of all shares of stock;

c. A partnership in which the United States person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or (ii) an interest in more than 50 percent of the partnership capital;

d. A trust of which the United States person: (i) is the trust grantor and (ii) has an ownership interest in the trust for United States federal tax purposes. See 26 U.S.C. sections 671-679 to determine if a grantor has an ownership interest in a trust;

e. A trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year; or

f. Any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

Are IRA Owners and Beneficiaries included?

An owner or beneficiary of an IRA is not required to report a foreign financial account held in the IRA.

Are Participants in and Beneficiaries of Tax-Qualified Retirement Plans included?

A participant in or beneficiary of a retirement plan described in Internal Revenue Code section 401(a), 403(a), or 403(b) is not required to report a foreign financial account held by or on behalf of the retirement plan.

What if I did not file FBAR in previous years?

See my previous article http://profwilliambyrnes.com/2014/06/18/new-offshore-voluntary-disclosure-program-ovdp-announced-with-50-penalty/

Also see this article: http://profwilliambyrnes.com/2014/06/11/why-is-the-irs-softening-the-offshore-voluntary-compliance-program/

book coverComplying with FATCA?

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

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An unconventional retirement planning tool

Posted by William Byrnes on June 30, 2014


When it comes to retirement income planning for most clients, less is not more, and the contribution limits placed on traditional tax-preferred retirement vehicles have many of these clients searching for creative ways to ensure a comfortable retirement income level. Enter the health savings account (HSA), which, though traditionally intended to function as a savings account earmarked for medical expenses, can actually function as a powerful retirement income planning vehicle for clients looking to supplement their retirement savings.

For the strategy to work, however, it is important that your clients understand the rules of the game, and the potential penalties that can derail the substantial tax benefits that an HSA can offer.

The HSA income strategy …

Read William Byrnes & Robert Bloink’s analysis of an unconventional retirement planning tool on LifeHealthPro

 

If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

 

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Analysis of FATCA 2014 1042-S Instruction’s

Posted by William Byrnes on June 28, 2014


Every person required to deduct and withhold any tax under chapter 3 or chapter 4 is liable for such tax.

Who Must File?

Every withholding agent must file an information return on Form 1042-S to report amounts paid during the preceding calendar year.

However, withholding agents who are individuals are not required to report a payment on Form 1042-S if they are not making the payment as part of their trade or business and no withholding is required to be made on the payment.

For example, an individual making a payment of interest that qualifies for the portfolio interest exception from withholding is not required to report the payment if the portfolio interest is paid on a loan that is not connected to the individual’s trade or business. However, an individual who is a withholding agent paying an amount that actually has been subject to withholding is required to report the payment. Also, an individual paying an amount on which withholding is required must report the payment, whether or not the individual actually withholds.

Who is a Withholding agent?

A withholding agent is any person, U.S. or foreign, that has control, receipt, or custody of an amount subject to withholding under chapter 3, who can disburse or make payments of an amount subject to withholding, or who makes a withholdable payment under chapter 4.

The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity. The term withholding agent also includes, but is not limited to, a qualified intermediary (QI), a nonqualified intermediary (NQI), a withholding foreign partnership (WP), a withholding foreign trust (WT), a flow-through entity, a U.S. branch, a territory FI, a nominee under section 1446, and an authorized agent. A person may be a withholding agent even if there is no requirement to withhold from a payment or if another person has already withheld the required amount from a payment.

In most cases, the U.S. person who pays (or causes to be paid) the item of U.S. source income to a foreign person (or to its agent) must withhold. However, other persons may be required to withhold. For example, if a payment is made by a QI (whether or not it assumes primary withholding responsibility) and the QI knows that withholding was not done by the person from which it received the payment, then that QI is required to do the appropriate withholding. In addition, withholding must be done by any QI that assumes primary withholding responsibility under chapters 3 and 4, a WP, a WT, a U.S. branch that agrees to be treated as a U.S. person, or an authorized agent.

Finally, if a payment is made by an NQI or a flow-through entity that knows, or has reason to know, that withholding was not done, that NQI or flow-through entity is required to withhold since it also falls within the definition of a withholding agent.

What’s New for the 2014 Form 1042-S?

The Form 1042-S for 2014 has been modified to accommodate reporting of payments and amounts withheld under FATCA (chapter 4) in addition to those amounts required to be reported under chapter 3.  Form 1042-S requires the reporting of an applicable exemption to the extent withholding under chapter 4 does not apply to a payment of U.S source fixed or determinable annual or periodical (FDAP) income (including deposit interest) that is reportable on Form 1042-S.

When a financial institution reports a payment made to its financial account, Form 1042-S also requires the reporting of additional information about a recipient of the payment, such as the recipient’s account number, date of birth, and foreign taxpayer identification number, if any.

For withholding agents, intermediaries, flow-through entities, and recipients, Form 1042-S requires that the chapter 3 status (or classification) and, when the payment reported is a FATCA withholdable payment, the chapter 4 status be reported on the form according to a code for each type of income.

For withholding agents that report amounts withheld by another withholding agent, Form 1042-S requests the name and EIN of the withholding agent that withheld the tax. This information is optional for 2014.

Electronic filing requirement for financial institutions. Beginning January 1, 2014, financial institutions that are required to report payments made under chapters 3 or 4 must electronically file Forms 1042-S (regardless of the number of forms to file).

Use Form 1042-S to:

  • report income described under Amounts Subject to Reporting on Form 1042-S, later, and to report amounts withheld under chapter 3 or chapter 4.
  • report specified Federal procurement payments paid to foreign persons that are subject to withholding.
  • report distributions of effectively connected income by a publicly traded partnership or nominee.

Do not use Form 1042-S to report an item required to be reported on any of the following forms:

  • Form W-2 (wages and other compensation made to employees (other than compensation for dependent personal services for which the beneficial owner is claiming treaty benefits), including wages in the form of group-term life insurance).
  • Form 1099.
  • FIRPTA: Dispositions by Foreign Persons of U.S. Real Property Interests, or Form 8805 Foreign Partner’s Information Statement of Section 1446 Withholding Tax.
  • Form 8966, FATCA Report. Foreign financial institutions (FFIs) and withholding agents are required to report on Form 8966 certain account holders and payees.  However, an FFI or withholding agent may also be required to file Form 1042-S to report payments of U.S. source FDAP income made to such persons and to report tax deducted and withheld, if any.

Amounts Subject to Reporting on Form 1042-S

Amounts subject to reporting on Form 1042-S are amounts from U.S. sources paid to foreign persons (including persons presumed to be foreign) or included in a U.S. payee pool that are reportable under chapters 3 and 4, even if no amount is deducted and withheld from the payment because of a treaty or Code exception to taxation or if any amount withheld was repaid to the payee.  Amounts subject to reporting are amounts from sources within the United States that constitute:

(a) fixed or determinable annual or periodical (FDAP) income (including deposit interest);

(b) certain gains from the disposal of timber, coal, or domestic iron ore with a retained economic interest; and

(c) gains relating to contingent payments received from the sale or exchange of patents, copyrights, and similar intangible property.

A payment is also subject to reporting if withholding under chapter 4 is applied (or required to be applied) to the payment. Amounts subject to reporting on Form 1042-S include, but are not limited to, the following amounts to the extent from U.S. sources:

(a)     Interest on deposits paid to certain nonresident aliens. Interest described in section 871(i)(2)(A) aggregating $10 or more paid with respect to a deposit if such interest is paid to a nonresident alien individual who is a resident of a country identified, in Revenue Procedure 2012-24 (or a superseding Revenue Procedure) as of December 31, prior to the calendar year in which the interest is paid.

A payor may elect to report interest described above paid to any nonresident alien individual by reporting all such interest. See Revenue Procedure 2012-24 (or a superseding Revenue Procedure) for the current list of countries with which the United States has in effect an income tax or other convention or bilateral agreement relating to exchange information within the meaning of section 6103(k)(4).

(b)     Corporate distributions. The entire amount of a corporate distribution (whether actual or deemed) must be reported, regardless of any estimate of the part of the distribution that represents a taxable dividend. Any distribution, however, that is treated as gain from the redemption of stock is not an amount subject to withholding.

(c)     Interest. This includes the part of a notional principal contract payment that is characterized as interest.

(d)     Rents.

(e)     Royalties.

(f)      Compensation for independent personal services performed in the United States.

(g)     Compensation for personal services performed in the United States (but only if the beneficial owner is claiming treaty benefits).

(h)     Annuities.

(i)      Pension distributions and other deferred income.

(j)      Most gambling winnings.

(k)     Cancellation of indebtedness. Effectively connected income (ECI).

(l)      Notional principal contract income.

(m)   Insurance premiums.

(n)     REMIC excess inclusions.

(o)     Students, teachers, and researchers. However, amounts that are exempt from tax under section 117 are not subject to reporting.

(p)     Amounts paid to foreign governments, foreign controlled banks of issue, and international organizations.

(q)     Foreign targeted registered obligations.

(r)     Original Issue Discount (OID) from the redemption of an OID obligation.

(s)      Certain dispositions of U.S. real property interests.

(t)      Other U.S.-source dividend equivalent payments

(u)     Guarantee of indebtedness.

(v)     Specified Federal procurement payments.

Amounts That Are Not Subject to Reporting on Form 1042-S

  • Interest and OID from short-term obligations.
  • Registered obligations targeted to foreign markets. Reporting will be required on interest paid on any registered obligation (regardless of whether targeted to foreign markets) if the registered obligation is issued after December 31, 2015.
  • Bearer obligations targeted to foreign markets. Withholding is required on interest paid on any bearer obligations targeted to foreign markets if the obligation is issued after March 18, 2012.
  • Notional principal contract payments that are not ECI.
  • Accrued interest and OID.
  • Certain withholdable payments. Withholdable payments not subject to reporting for chapter 3 purposes (other than bank deposit interest paid to certain nonresident aliens) are not required to be reported if withholding is not applied (or required to be applied) under chapter 4.

How Are Disregarded Entities Reported?  

If a U.S. withholding agent makes a payment to a disregarded entity (other than a limited branch of an FFI) that is not a hybrid entity making a treaty claim, and receives a valid Form W-8BEN-E or W-8ECI from a foreign person that is the single owner of the disregarded entity, the withholding agent must file a Form 1042-S in the name of the foreign single owner. The taxpayer identifying number (TIN) on the Form 1042-S, if required, must be the foreign single owner’s TIN.

Example. WA, a withholding agent, makes a withholdable payment of interest to LLC, a foreign limited liability company that is not an FFI. LLC is wholly-owned by FC, a foreign corporation that is an excepted non-financial foreign entity. LLC is treated as a disregarded entity. WA has a Form W-8BEN-E from FC on which it states that it is the beneficial owner of the income paid to LLC. WA reports the interest payment on Form 1042-S showing FC as the recipient. The result would be the same if LLC was a domestic entity.

How Are Amounts paid to a NQI or Flow-Through Entity Reported? 

If a U.S. withholding agent makes a payment to an NQI or a flow-through entity (other than a nonparticipating FFI) with respect to a withholdable payment, it must complete a separate Form 1042-S for each recipient on whose behalf the NQI or flow-through entity acts as indicated by its withholding statement and the documentation associated with its Form W-8IMY.

Example. WA, a withholding agent, makes a withholdable payment of interest to FFI 1, a reporting model 1 FFI. FFI 1 provides WA with a valid Form W-8IMY with which it associates a withholding statement that allocates 80% of the payment to FFI 2, a participating FFI, and 20% of the payment to a pool of nonparticipating FFIs. FFI 1 also provides WA with FFI 2′s Form W-8IMY with which it associates a withholding statement that allocates 100% of the payment to recalcitrant pool-no U.S. indicia. WA must complete a Form 1042-S for the interest allocated to a pool of nonparticipating FFIs with FFI 1 as the recipient and must complete another Form 1042-S for the interest allocated to a pool of recalcitrant account holders-no U.S. indicia with FFI 2 as the recipient.

book coverComplying with FATCA?

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

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Updated 2014 Qualified Intermediary (QI) Agreement released !

Posted by William Byrnes on June 27, 2014


Revenue Procedure 2014-39Application Procedures and Overview of Requirements for Qualified Intermediary Status Under Chapters 3, 4, and 61 and Section 3406; Final Qualified Intermediary Agreement.  The effective date of this revenue procedure is June 27, 2014.  Revenue Procedure 2014-39 will be published in IRB 2014-29, dated July 14, 2014.

The QI agreement is updated to reflect the enactment of Chapter 4 (§§1471-1474) of the Code, and the issuance of regulations under section 3406 and chapters 3, 4, and 61 of the Code.

Renewal of QI:  An FFI that seeks to renew its QI agreement as well as register as a (a) participating FFI, (b) registered deemed-compliant FFI, or (c) limited FFI must do so by submitting a registration form through the FATCA registration website.

An NFFE that is a direct reporting NFFE or a sponsoring entity of a direct reporting NFFE must also renew its QI agreement through the FATCA registration website.

A QI will retain its QI-EIN to be used when it is fulfilling the requirements of a QI under chapters 3, 4, and 61 and section 3406, including making tax deposits and filing Forms 945, 1042, 1042-S, 1099, and 8966.

New QI: A prospective QI must submit Form 14345, Qualified Intermediary Application, to become a QI.   The Form 14345 must establish, to the satisfaction of the IRS, that the applicant has adequate resources and Procedures to comply with the terms of the QI agreement.

Once the QI application is approved, the IRS will send an approval notice to the address of the QI provided on Form 14345.  The approval notice will include a QI-EIN for fulfilling the requirements of a QI under chapters 3, 4, and 61, and section 3406, including making tax deposits and filing Forms 945, 1042, 1042-S, 1099, and 8966.

It will also instruct a QI (other than an NFFE that is not acting on behalf of its shareholders) to submit the information specified in Form 8957, Foreign Act Tax Compliance Act (FATCA) Registration, (“registration form”) through the FATCA registration website available at www.irs.gov/FATCA, to obtain its chapter 4 status as a (a) participating FFI, (b) registered deemed-compliant FFI, or (c) direct reporting NFFE, and must register as a QI by providing the information specified for renewal of QI status.

An NFFE that is acting as a sponsoring entity of a direct reporting NFFE and that obtains QI status must also register as a QI on the FATCA registration website by providing the information specified for renewal of QI status.  Upon completion of the registration process, an FFI (other than a limited FFI or limited branch of an FFI) will be issued a GIIN to be used to identify itself to withholding agents and to tax administrators for FATCA reporting. In the case of an NFFE that is not acting on behalf of its shareholders, the approval notice will provide the date on which the QI-EIN is issued (which will serve as the effective date of the QI agreement).

For future years, the IRS intends to update the online FATCA registration website to allow prospective QIs to submit a QI application electronically and in such manner as the IRS may prescribe in future guidance or other instructions. Until this update to the FATCA registration website occurs, a prospective QI must submit to the IRS address identified above a paper Form 14345.

book coverComplying with FATCA?

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

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CDOT – Is UK Version of FATCA, FATCA on Steroids?

Posted by William Byrnes on June 26, 2014


It is also worth pointing out that of the 77,353 entities on the June 1st 2014 list, 37% are from the UK and her Crown Dependencies and Overseas Territories, most notably the Cayman Islands.One wonders if, were if not for CDOT, the 77,353 might not be considerably smaller.

via CDOT – Is UK Version of FATCA, FATCA on Steroids?.

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Analysis of new 2014 FATCA W-8BEN-E Instructions

Posted by William Byrnes on June 25, 2014


On June 25, 2014 the IRS released the W-8 BEN-E instructionsRead William Byrnes’ previous April 2 analysis of the W-8BEN-E here.  Read William Byrnes’ analysis of the W-8IMY instructions here.  For analysis of the requirements of the 31 FATCA entity classifications, see William Byrnes’ previous articles:  http://profwilliambyrnes.com/category/fatca/

Analysis of W-8BEN-E Instructions …

Who Must Provide W-8BEN-E?

A foreign entity must submit a Form W-8BEN-E to the withholding agent if it will receive a FATCA withholdable payment, receive a payment subject to chapter 3 withholding, or if it maintains an account with an FFI.

All Beneficial Owners

Form W-8 BEN-E must be provided by ALL the entities that are beneficial owners of a payment, or of another entity that is the beneficial owner.  If the income or account is jointly owned by more than one person, then the income or account will be treated by the withholding agent as owned by a foreign beneficial owner only if Forms W-8BEN or W-8BEN-E are provided by EVERY owner of the account.

Treatment as US Account

If the withholding agent or financial institution receives a Form W-9 from any of the joint owners, then the payment must be treated as made to a U.S. person and the account treated as a U.S. account.  An account will be treated as a U.S. account for FATCA by an FFI if any of the account holders is a specified U.S. person or a U.S.-owned foreign entity (unless the account is otherwise excepted from U.S. account status for FATCA purposes).

Hybrids

Hybrid Entity: A hybrid entity should give Form W-8BEN-E on its own behalf to a withholding agent only for income for which it is claiming a reduced rate of withholding under an income tax treaty or to document its chapter 4 status for purposes of maintaining an account with an FFI requesting this form (when it is not receiving withholdable payments or payments subject to chapter 3 withholding).

Reverse Hybrid: A reverse hybrid entity should give Form W-8BEN-E on its own behalf to a withholding agent only for income for which no treaty benefit is being claimed or to establish its status for chapter 4 purposes (when required).

Who Should Not Use Form W-8BEN-E?

US Person: If the filer is a US person (including US citizens, resident aliens, and entities treated as US persons, such as a corporation organized under the law of a state), then submit Form W-9, Request for Taxpayer Identification Number and Certification.

Foreign Insurance Company: A foreign insurance company that has made an election under section 953(d) to be treated as a U.S. person should submit Form W-9 to certify its “U.S. status” even if it is an FFI for FATCA purposes.  Certain foreign insurance companies issuing annuities or cash value insurance contracts that elect to be treated as a U.S. person for federal tax purposes but are not licensed to do business in the United States are treated as FFIs for purposes of chapter 4. For purposes of providing a withholding agent with documentation for both chapter 3 and chapter 4 purposes, however, such an insurance company is permitted to use Form W-9 to certify its status as a U.S. person.

NRA: A nonresident alien individual must submit Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).

Disregarded: A U.S. person that is a single owner of a disregarded entity, and that is not also a hybrid entity claiming treaty benefits, should provide Form W-9.  A foreign branch of a U.S. financial institution (other than a branch that operates as a qualified intermediary) that is treated as an FFI under an applicable IGA is permitted to use Form W-9 to certify its status as a U.S. person for chapter 3 and chapter 4 purposes.

But if the single owner is not a U.S. person,is not a branch of an FFI claiming FATCA status, and is not a hybrid entity claiming treaty benefits, it should provide either Form W-8BEN or Form W-8BEN-E as appropriate.

Intermediary: Form W-8IMY is submitted generally by a payment recipient with non-beneficial owner status, i.e. an intermediary.  Such intermediary can be a U.S. branch, a qualified intermediary, a non-qualified intermediary, foreign partnership, foreign grantor or a foreign simple trust.  Read my analysis of W-8IMY and its instructions in my June 24th article.  An entity treated as a flow-through entity should generally provide Form W-8IMY for chapter 3 or chapter 4 purposes.

Expiration of Form W-8BEN-E.

Generally, a Form W-8BEN-E will remain valid for purposes of both chapters 3 and 4 for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect.  For example, a Form W-8BEN signed on September 30, 2014 remains valid through December 31, 2017.  However, under certain conditions a Form W-8BEN-E will remain in effect indefinitely until a change of circumstances occurs.

Change in circumstances.

If a change in circumstances makes any information on the Form W-8BEN-E incorrect for purposes of either chapter 3 or chapter 4, then the submitting person must notify the withholding agent or financial institution maintaining the account within 30 days of the change in circumstances and you must file a new Form W-8BEN-E (or other appropriate form as applicable).

Certification

Part XXIX requires certification, under penalty of perjury, by the payee or a person authorized to sign on the payee’s behalf.  This part of the final form also contains the following language that does not appear in the current form: “I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect.”

Which of the 30 Parts of the W-8BEN-E to Complete?

The W-8BEN-E form has thirty parts, whereas the former dual-purpose W8BEN in use since 2006 has just four parts.  The new 2014 Form W-8BEN-E includes the FATCA and QI entity classification reporting requirements.

All filers of the new W-8BEN-E must complete Parts I and XXIX. The FATCA classification indicated determines which one of the Parts IV through XXVIII must be completed.

Part I – Identification of Beneficial Owner

Part I of the W-8BEN-E requires general information, the QI status, and the FATCA classification of the filer.

Question 1. A disregarded entity or branch enters the legal name of the entity that owns the disregarded entity (looking through multiple disregarded entities if applicable) or maintains the branch.

Question 2. A corporation must enter its country of incorporation.  Any other type of entity must instead enter the country under whose laws it is created, organized, or governed.

Question 3. A disregarded entity receiving a payment should only enter its name on line 3 if it is receiving a withholdable payment or hold an account with an FFI and

  1. has registered with the IRS and been assigned a GIIN associated with the legal name of the disregarded entity;
  2. is a reporting Model 1 FFI or reporting Model 2 FFI; and
  3. is not a hybrid entity using this form to claim treaty benefits.

If not required to provide the legal name, then a disregarded entity receiving a payment or maintaining an account may instead enter its name on line 10.

Question 4 requests the QI status. If the filer is a disregarded entity, partnership, simple trust, or grantor trust, then the filer must complete Part III if the entity is claiming benefits under a U.S. tax treaty.

Question 5 requests the FATCA classification of the entity.  W-8BEN-E currently lists 31 FATCA classifications of which the entity must check only one box unless otherwise indicated. Completion of the W-8BEN-E other parts depend upon the selection of the FATCA classification.

  1. Nonparticipating FFI (including a limited FFI or an FFI related to a Reporting IGA FFI other than a registered deemed-compliant FFI or participating FFI).
  2. Participating FFI.
  3. Reporting Model 1 FFI.
  4. Reporting Model 2 FFI.
  5. Registered deemed-compliant FFI (other than a reporting Model 1 FFI or sponsored FFI that has not obtained a GIIN).
  6. Sponsored FFI that has not obtained a GIIN. Complete Part IV.
  7. Certified deemed-compliant nonregistering local bank. Complete Part V.
  8. Certified deemed-compliant FFI with only low-value accounts. Complete Part VI.
  9. Certified deemed-compliant sponsored, closely held investment vehicle. Complete Part VII.
  10. Certified deemed-compliant limited life debt investment entity. Complete Part VIII.
  11. Certified deemed-compliant investment advisors and investment managers. Complete Part IX.
  12. Owner-documented FFI. Complete Part X.
  13. Restricted distributor. Complete Part XI.
  14. Nonreporting IGA FFI (including an FFI treated as a registered deemed-compliant FFI under an applicable Model 2 IGA). Complete Part XII.
  15. Foreign government, government of a U.S. possession, or foreign central bank of issue. Complete Part XIII.
  16. International organization. Complete Part XIV.
  17. Exempt retirement plans. Complete Part XV.
  18. Entity wholly owned by exempt beneficial owners. Complete Part XVI.
  19. Territory financial institution. Complete Part XVII.
  20. Nonfinancial group entity. Complete Part XVIII.
  21. Excepted nonfinancial start-up company. Complete Part XIX.
  22. Excepted nonfinancial entity in liquidation or bankruptcy. Complete Part XX.
  23. 501(c) organization. Complete Part XXI.
  24. Nonprofit organization. Complete Part XXII.
  25. Publicly traded NFFE or NFFE affiliate of a publicly traded corporation. Complete Part XXIII.
  26. Excepted territory NFFE. Complete Part XXIV.
  27. Active NFFE. Complete Part XXV.
  28. Passive NFFE. Complete Part XXVI as well as Part XXX if substantial U.S. owners*.
  29. Excepted inter-affiliate FFI. Complete Part XXVII.
  30. Direct reporting NFFE.
  31. Sponsored direct reporting NFFE. Complete Part XXVIII

*For a Passive NFFE, a specified U.S. person is a substantial U.S. owner if the person has more than a 10 percent beneficial interest in the entity.

FFIs Covered by an IGA and Related Entities

A reporting IGA FFI resident in, or established under the laws of, a jurisdiction covered by a Model 1 IGA should check “Reporting Model 1 FFI.” A reporting FFI resident in, or established under the laws of, a jurisdiction covered by a Model 2 IGA should check “Reporting Model 2 FFI.”

If the FFI is treated as a registered deemed-compliant FFI under an applicable IGA, it should check “Nonreporting IGA FFI” rather than “registered deemed-compliant FFI” and provide its GIIN in Part XII, line 26.

An FFI that is related to a reporting IGA FFI and that is treated as a nonparticipating FFI in its country of residence should check nonparticipating FFI in line 5. An FFI that is related to a reporting IGA FFI and that is a participating FFI, deemed-compliant FFI, or exempt beneficial owner under the U.S. Treasury regulations or an applicable IGA should check the appropriate box for its chapter 4 status.

Requirement to Provide a GIIN

If the entity is in the process of registering with the IRS as a participating FFI, registered deemed-compliant FFI, reporting Model 1 FFI, reporting Model 2 FFI, direct reporting NFFE, or sponsored direct reporting NFFE, but has not received a GIIN, it may complete this line by writing “applied for.” However, the person requesting this form must receive and verify the GIIN within 90 days.

For payments made prior to January 1, 2015, a Form W-8BEN-E provided by a reporting Model 1 FFI need not contain a GIIN. For payments made prior to January 1, 2016, a sponsored direct reporting NFFE or sponsored FFI that has not obtained a GIIN must provide the GIIN of its sponsoring entity.

501(c) Organization

Only foreign entities that are tax-exempt under section 501 should check the 501(c) organization “Tax-exempt organization” box. Such organizations should use Form W-8BEN-E only if they are claiming a reduced rate of withholding under an income tax treaty or a code exception other than section 501. If claiming an exemption from withholding under code section 501, then it must submit Form W-8EXP to document the exemption and chapter 4 status.

Non-Profit Organizations Covered by an IGA

A non-profit entity that is established and maintained in a jurisdiction that is treated as having in effect a Model 1 IGA or Model 2 IGA, and that meets the definition of Active NFFE under Annex I of the applicable IGA, should not check a box for its status on line 5.

Completion of Parts IV through XXVIII

An entity should complete only one part of Parts IV through XXVIII certifying to the chapter 4 status. But an entity that selects nonparticipating FFI, participating FFI, registered deemed-compliant FFI, reporting Model 1 FFI, reporting Model 2 FFI, or direct reporting NFFE (other than a sponsored direct reporting NFFE) is not required to complete any of the certifications in Parts IV through XXVIII.

Part IV Sponsored FFI That Has Not Obtained a GIIN
Part V Certified Deemed-Compliant Nonregistering Local Bank
Part VI Certified Deemed-Compliant FFI with Only Low-Value Accounts
Part VII Certified Deemed-Compliant Sponsored, Closely Held Investment Vehicle
Part VIII Certified Deemed-Compliant Limited Life Debt Investment Entity
Part IX Certified Deemed-Compliant Investment Advisors and Investment Managers
Part X Owner-Documented FFI
Part XI Restricted Distributor
Part XII Nonreporting IGA FFI
Part XIII Foreign Government, Government of a U.S. Possession, or Foreign Central Bank of Issue
Part XIV International Organization
Part XV Exempt Retirement Plans
Part XVI Entity Wholly Owned by Exempt Beneficial Owners
Part XVII Territory Financial Institution
Part XVIII Excepted Nonfinancial Group Entity
Part XIX Excepted Nonfinancial Start-Up Company
Part XX Excepted Nonfinancial Entity in Liquidation or Bankruptcy
Part XXI 501(c) Organization
Part XXII Non-Profit Organization
Part XXIII Publicly Traded NFFE or NFFE Affiliate of a Publicly Traded Corporation
Part XXIV Excepted Territory NFFE
Part XXV Active NFFE
Part XXVI Passive NFFE
Part XXVII Excepted Inter-Affiliate FFI
Part XXVIII Sponsored Direct Reporting NFFE
Part XXIX Certification
Part XXX Substantial U.S. Owners of Passive NFFE

Part X – Owner-Documented FFI

Line 24a. An owner-documented FFI must check the box to certify that it meets all of the requirements for this status and is providing this form to a U.S. financial institution, participating FFI, reporting Model 1 FFI, or reporting Model 2 FFI that agrees to act as a designated withholding agent with respect to the FFI identified on line 1. Then select either 24b or 24c.

Line 24b. Check this box to certify that the documentation set forth in the certifications has been provided (or will be provided), including the owner reporting statement described in this line 24b, or

Line 24c. Check this box to certify that the auditor’s letter has been provided (or will be provided).

Entities Providing Certifications Under an Applicable IGA

In lieu of the certifications contained in Parts IV through XXVIII of Form W-8BEN-E, a reporting Model 1 FFI or reporting Model 2 FFI in certain cases may request alternate certifications to document its account holders pursuant to an applicable IGA or it may otherwise provide an alternate certification to a withholding agent.

A withholding agent that is an FFI may provide a chapter 4 status certification other than as shown in Parts IX through XXVIII in order to satisfy its due diligence requirements under an applicable IGA. In such a case, attach that alternative certification to this Form W-8BEN-E in lieu of completing a certification otherwise required in Parts IV through XXVIII provided that

1) the certification accurately reflects the chapter 4 status or under an applicable IGA; and

2) the withholding agent provides a written statement that it has provided the certification to meet its due diligence requirements as a participating FFI or registered deemed-compliant FFI under an applicable IGA.

An applicable IGA certification may be provided with the W-8BEN-E if determining chapter 4 status under the definitions provided in an applicable IGA and that certification identifies the jurisdiction that is treated as having an IGA in effect and describes the status as an NFFE or FFI in accordance with the applicable IGA.

However, if under an applicable IGA the entity’s status is determined to be an NFFE, it must still determine if it is an excepted NFFE under the FATCA Regulations. Additionally, the entity must comply with the conditions of its status under the law of the IGA jurisdiction.

book coverComplying with FATCA

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

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5 new IGAs with 3 business days to go until 30% FATCA withholding on remaining 167 countries begins

Posted by William Byrnes on June 25, 2014


(Updated as of 19:00 EDT June 25, 2014, FFI #s updated June 26 with Haydon Perryman, Director of Compliance Solutions, Strevus)

FATCA FACTS

IGAs: 83 (72,034 FFI/branches)

Model 1: 74 (57,492 FFI/branches)

Model 2: 9 (13,834 FFI/branches)

Non-IGAs: 250 – 83 = 167 (5,212 FFI/branches)

Registered: 77,353 FFI/branches from 205 countries/jurisdictions

Approximately 25% (19,046) of the currently 77,353 registered FFIs are impacted by the FFI agreement changes, including FFIs registrations from the current nine Model 2 countries/jurisdictions and the FFI registrations from the 123 countries/jurisdictions without an IGA.

77,353 financial institutions and their branches registered from 205 countries and jurisdictions, of a total of 250 countries and jurisdictions recognized by the USA.  45 countries / jurisdictions do not yet have any FFI registrations. One of these 45 countries, Kosovo, has an IGA.

Of the total FFIs registered, 72,141 FFIs (93%) registered from the 83 countries/jurisdictions that as of June 25th (at 19:00 EDT) have an IGA.  57,492 FFIs registered from Model I IGA jurisdictions probably most as a category of a Model 1 Deemed Compliant FFI or as a branch.  13,834 (18%) of FFIs registered as Model 2 reporting FFIs or branches.  These 13,834 Model 2 FFI registrations are impacted by the FFI Agreement changes of June 24, 2014.

Non IGA Registrations (Participating FFI and other)

The 5,212 FFIs registered either as Participating FFIs or branches from the remaining 123 countries/jurisdictions (without an IGA) currently are also impacted (note that while there are 83 IGAs as of today, no FFI registered from Kosovo as of the June 2nd GIIN list, thus it is 205 subtracting 82 IGAs).

30% FATCA Withholding Begins July 1st

Meanwhile, 30% withholding on all withholdable payments to nonparticipating FFIs in the 167 non-IGA countries/jurisdictions begins three business days from today, on July 1st. Most commentators expect a rush of over 300,000 FFI registrations by the end of 2014.  Some predict more than a half million entities must still register, based on the UK’s HMRC estimate that 75,000 entities are impacted by FATCA within the United Kingdom (where less than 6,300 are currently registered on the GIIN list). Withholding on IGA jurisdiction non-compliant FFIs only begins January 1st.

Model 2 IGAs – 9 (13,834 FFI Registered)

  1. Armenia (5-8-2014): 28
  2. Austria (4-29-2014): 2,979
  3. Bermuda (12-19-2013): 1,243
  4. Chile (3-5-2014): 325
  5. Hong Kong (5-9-2014): 1.540
  6. Japan (6-11-2013): 3,252
  7. Paraguay (6-6-2014): 17
  8. Switzerland (2-14-2013): 4,041
  9. Taiwan: 409

Below is a selection of the 77,353 registered from 119 of the total 205 countries and jurisdictions on the June 2nd GIIN list.

  1. Afghanistan: 7
  2. Andorra: 34
  3. Anguilla: 71
  4. Antigua & Barbuda: 36
  5. Argentina: 270
  6. Armenia: 28 <– IGA
  7. Aruba: 14
  8. Australia: 1,865 <– IGA
  9. Austria: 2,979
  10. Azerbaijan: 17 <– IGA
  11. Bahamas: 611  <– IGA
  12. Barbados: 124  <– IGA
  13. Belgium: 250  <– IGA
  14. Belarus: 65
  15. Belize: 123
  16. Bermuda: 1,243
  17. Brazil: 2,259  <– IGA
  18. Bulgaria: 73
  19. BVI: 1,838  <– IGA
  20. Canada: 2,265  <– IGA
  21. Cayman Islands: 14,837  <– IGA
  22. China: 212
  23. Christmas Island: 1
  24. Colombia: 173  <– IGA
  25. Comoros Is.: 1
  26. Costa Rica: 123  <– IGA
  27. Cook Is.: 73
  28. Croatia: 51  <– IGA
  29. Curacao: 174  <– IGA
  30. Cyprus: 280  <– IGA
  31. Czech Republic: 93  <– IGA
  32. Denmark: 187  <– IGA
  33. Djibouti: 1
  34. Dominica: 17 <– IGA
  35. Dominican Republic: 68
  36. Ecuador: 22
  37. Egypt: 63
  38. Equatorial Guinea: 1
  39. Estonia: 27  <– IGA
  40. Falkland Islands: 1
  41. Finland: 467  <– IGA
  42. France: 2,290  <– IGA
  43. French Southern Territories: 1
  44. Georgia: 24  <– IGA
  45. Germany: 2,555  <– IGA
  46. Gibraltar: 97  <– IGA
  47. Greece: 92
  48. Greenland: 1
  49. Grenada: 32
  50. Guadeloupe: 1
  51. Guam: 3
  52. Guatemala: 76
  53. Guernsey: 2,396  <– IGA
  54. Honduras: 48  <– IGA
  55. Hong Kong: 1,540 <– IGA
  56. Hungary: 102  <– IGA
  57. Iceland: 5
  58. India: 247  <– IGA
  59. Indonesia: 308 <– IGA
  60. Ireland: 1,757  <– IGA
  61. Isle of Man: 313  <– IGA
  62. Israel: 322 <– IGA
  63. Italy: 457  <– IGA
  64. Jamaica: 42 <– IGA
  65. Japan: 3,252  <– IGA
  66. Jersey: 1,619  <– IGA
  67. North Korea: 4
  68. South Korea: 397
  69. Kuwait: 78
  70. Latvia: 41
  71. Lichtenstein: 240  <– IGA
  72. Lithuania: 22 <– IGA
  73. Luxembourg: 3,561 <– IGA
  74. Macao: 37
  75. Malta: 236  <– IGA
  76. Mauritius: 728  <– IGA
  77. Mexico: 419  <– IGA
  78. Monaco: 99
  79. Netherlands: 2,054  <– IGA
  80. New Zealand: 335  <– IGA
  81. Norway: 313  <– IGA
  82. Other: 23
  83. Panama: 451  <– IGA
  84. Paraguay: 17   <– IGA
  85. Peru: 165  <– IGA
  86. Poland: 165  <– IGA
  87. Portugal: 256  <– IGA
  88. Qatar: 47  <– IGA
  89. Romania: 110 <– IGA
  90. Russia: 515
  91. Saint Pierre & Miquelon: 1
  92. San Marino: 15
  93. Saudi Arabia: 18 <–IGA
  94. Seychelles: 38  <– IGA
  95. Singapore: 784  <– IGA
  96. South Africa: 318  <– IGA
  97. Spain: 1,188  <– IGA
  98. Slovakia: 55  <– IGA
  99. Slovenia:  21  <– IGA
  100. St Kitts & Nevis: 71 <– IGA
  101. St Lucia: 61  <– IGA
  102. St. Vincent and the Grenadines: 105  <– IGA
  103. Sweden: 313  <– IGA
  104. Switzerland: 4,041  <– IGA
  105. Taiwan: 409 <- IGA
  106. Thailand: 768 <-IGA
  107. Timor-Leste: 1
  108. Togo: 4
  109. Tonga: 1
  110. Turkey: 66  <– IGA
  111. Turkmenistan: 1   <-- IGA
  112. Turks & Caicos: 28  <– IGA
  113. Ukraine: 106
  114. United Arab Emirates: 136  <– IGA
  115. United Kingdom: 6,264  <– IGA
  116. USA: 563
  117. Uruguay: 132
  118. Venezuela: 30
  119. Wallis & Fortuna: 1

FFI Registration Among Model 1 IGAs and the Rest

Of a possible 250 countries and jurisdictions recognized by the US State Department and IRS (not including the 14 US dependencies for which FATCA withholding does not apply), 45 do not yet have an FFI registration.  But of the 205 countries and jurisdictions with FFI registrations, 20% of the total registered FFIs are Cayman Islands firms (14,837) (see my article of June 8). 

There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration.  The list of FFIs requiring registration includes, by example, trusts companies, certain trusts, life insurance companies, investment funds, banks.  The IRS has said that “At this time, the full FFI list is expected to be less than 500,000 records.”

Some financial pundits are estimating as many as twice this figure.  Yet it seems that the categories of ‘certified deemed compliant’ FFIs and exempt FFIs should soak up a number of small, local FFIs.  Yet,  the UK Revenue HMRC estimates 75,000 of its FFIs are impacted by FATCA (http://www.hmrc.gov.uk/fatca/itc-regs-2013.pdf – page 4) (down from 300,000 prior to the UK-USA IGA).   If the UK, as one albeit important financial center, requires anything close to 75,000 FFI registrations, then the IRS figure of 500,000 FFI registrations is far too low.  Note that the ’500,000′ FFI figure, if it excludes the corresponding branch registrations in other jurisdictions, and if it excludes the five classifications of “Certified Deemed Compliant”, seems more realistic.

BRIC Registration

Brazil leads the BRIC countries with 2,258 FFI registered, followed by Russia (515), India (247) with China only having 212.

NAFTA Registrations

2,265 FFIs registered from Canada and Mexico at 419.

Major OECD Countries Registrations

The United Kingdom (6,264) Revenue has recently announced that it will not adopt the IRS issued six-month extension (until December 31, 2014) for entity accounts (see my articles of May 5th and 2nd).  Thus, from July 1st, UK FFIs must document all personal and entity accounts under the requirements for “new” accounts as opposed as to “pre-existing” account due diligence procedures.

Australia (1,865), France (2,291), Germany (2,255), Ireland (1,757) and Netherlands (2,054).

European Financial Centers Registrations

Switzerland (4,041), Luxembourg (3,561), Austria (2,979), Lichtenstein (240).  Guernsey (2,396), Jersey (1,619), Isle of Man (313) and Gibraltar (97).

Caribbean Financial Centers Registrations

BVI (1,838), Bahamas (611), Bermuda (1,243) and Panama (451).

State of Palestine Registrations

23 FFIs registered with the IRS, listed as from the State of Palestine.  Primarily MENA banks and a branch of HSBC Middle East Bank.  See June 8th article  about this contentious issue.

North Korean Registrations

While North Korean remains a sanctioned country by OFAC (see http://www.treasury.gov/resource-center/sanctions/Programs/pages/nkorea.aspx) with a FINCEN AML update available at http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-A005.pdf, it had 4 FFI branches register.

“Other” Registrations

23 financial firms listed “other” as the country / jurisdiction.  By example, Harneys Nevis by example should probably register under Nevis (or where it is incorporated, if not Nevis)?  Why is the Austrian insurance group, Sigal Life UNIQA group Austria,  registered under “Other”?  Perhaps the July 1st list will have movement from “Other” to actual countries?

Interesting Research on the UK FFI List (by the subscriber “Edelweiss” in the comments on this blog)

Edelweiss has posted his research on the UK’s 6.264 registered FFIs (under comments to another one of this blog’s articles).  I think his research bears repeating in this article.  By example, he reviewed the list by GIIN and determined that about 1% of the global sign-ups of the June 2nd GIIN list are affiliated with AXA SA, the French financial services firm.

He then compares the 6,264 entities registered from the UK with the HMRC estimate (pg. 4) of 75,000 impacted FFIs (down from 300,000 prior to the IGA), finding that less than 10% of UK FFIs registered for the June GIIN list.  Either the HMRC estimated horribly wrong, or most UK FFIs are still undertaking initial FATCA preparation (relying on the October 25th registration deadline imposed by HRMC instead).

  • The UK list is dominated by fund management firms and their various funds, private equity and the plethora of feeder funds investment trusts and quite a few trusts. Bridgepoint, a small UK private equity firm, has 72 entities (globally), while 3i, a similarly small UK private equity firm, has 45 entities (globally).
  • There are quite a few entities that appear to have names suggesting they are part of a private equity holding company structure.
  • Globally, he found 26 mentions of “Bidco”, 157 of “Holdco”, 37 “Midco”, 44 “Topco”, 144 “Acquisition”, 156 “Mezzanine”.
  • He found 321 instances of “LLP” and “265″ instances of partnership
  • Finally, he found 16 “deceased” and 33 “will trust”

Model 1 IGA – 31 (followed by number of registered FFIs/branches)

  1. Australia (4-28-2014): 1,865
  2. Belgium (4-23-2014): 250
  3. Canada (2-5-2014): 2,265
  4. Cayman Islands (11-29-2013): 14,837
  5. Costa Rica (11-26-2013): 123
  6. Denmark (11-19-2012): 187
  7. Estonia (4-11-2014): 27
  8. Finland (3-5-2014): 467
  9. France (11-14-2013): 2,291
  10. Germany (5-31-2013): 2,555
  11. Gibraltar (5-8-2014): 97
  12. Guernsey (12-13-2013): 2,396
  13. Hungary (2-4-2014): 102
  14. Honduras (3-31-2014): 48
  15. Ireland (1-23-2013): 1,757
  16. Isle of Man (12-13-2013): 313
  17. Italy (1-10-2014): 457
  18. Jamaica (5-1-2014): 42
  19. Jersey (12-13-2013): 1,619
  20. Liechtenstein (5-19-2014): 240
  21. Luxembourg (3-28-2014): 3,561
  22. Malta (12-16-2013): 236
  23. Mauritius (12-27-2013): 728
  24. Mexico (4-9-2014): 419
  25. Netherlands (12-18-2013): 2,054
  26. New Zealand (6-12-2014) 335
  27. Norway (4-15-2013): 313
  28. Slovenia (6-2-2014): 21
  29. South Africa (6-9-2014): 318  
  30. Spain (5-14-2013): 1,188
  31. United Kingdom (9-12-2012): 6,264

Model 2 IGA – 5

  1. Austria (4-29-2014): 2,979
  2. Bermuda (12-19-2013): 1,243
  3. Chile (3-5-2014): 325
  4. Japan (6-11-2013): 3,252
  5. Switzerland (2-14-2013): 4,041

Jurisdictions that have reached agreements in substance:

Model 1 IGA – 43 (followed by number of registered FFIs)

  1. Antigua and Barbuda (6-3-2014): 36
  2. Azerbaijan (5-16-2014): 17
  3. Bahamas (4-17-2014): 611
  4. Barbados (5-27-2014): 124
  5. Belarus (6-6-2014): 65
  6. Brazil (4-2-2014): 2,259
  7. British Virgin Islands (4-2-2014): 1,838
  8. Bulgaria (4-23-2014): 73
  9. Colombia (4-23-2014): 173
  10. Croatia (4-2-2014): 51
  11. Curaçao (4-30-2014): 174
  12. Czech Republic (4-2-2014): 93
  13. Cyprus (4-22-2014): 280
  14. Dominica (6-19-2014): 17 < – new entry
  15. Georgia (6-12-201): 25
  16. Grenada (6-16-2014): 32 < – new entry
  17. India (4-11-2014): 247
  18. Indonesia (5-4-2014): 308
  19. Israel (4-28-2014): 322
  20. Kosovo (4-2-2014) – nil
  21. Kuwait (5-1-2014): 78
  22. Latvia (4-2-2014): 41
  23. Lithuania (4-2-2014): 22
  24. Panama (5-1-2014): 451
  25. Peru (5-1-2014): 165
  26. Poland (4-2-2014): 165
  27. Portugal (4-2-2014): 256
  28. Qatar (4-2-2014): 47
  29. Romania (4-2-2014): 110
  30. St. Kitts and Nevis (6-4-2014): 71
  31. St. Lucia (6-12-2014): 61
  32. St. Vincent and the Grenadines (6-2-2014): 105
  33. Saudi Arabia (6-24-2014): 18 < – new entry
  34. Seychelles (5-28-2014): 38
  35. Singapore (5-5-2014): 784
  36. Slovak Republic (4-11-2014): 55
  37. South Korea (4-2-2014): 397
  38. Sweden (4-24-2014): 313
  39. Thailand (6-24-2014): 768 < – new entry
  40. Turkey (6-3-2014): 66
  41. Turkmenistan (6-3-2014): 1  
  42. Turks and Caicos Islands (5-12-2014): 28
  43. United Arab Emirates (5-23-2014): 136

Model 2 IGA – 4

  1. Armenia (5-8-2014): 28
  2. Hong Kong (5-9-2014): 1.540
  3. Paraguay (6-6-2014): 18  
  4. Taiwan (6-23-2014): 409 < – new entry

Practical Compliance Guide for FATCA

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.

Posted in FATCA | Tagged: , , , , | Leave a Comment »

5 Tax Facts about IRS Notices and Letters

Posted by William Byrnes on June 25, 2014


In Tax Tip 2014-60, the IRS disclosed that it sends millions of notices and letters to taxpayers.   Not surprising, given that over 150 million returns are filed each year.   The IRS informed taxpayers of 6 important tips about such notices and letters:

1. The IRS sends letters and notices by mail, never by email nor by social media.  Each notice has specific instructions about what the taxpayer must do to respond.  Often, a taxpayer only needs to respond by mail to deal with whatever the notice requests.  Keep copies of any notices and responses with the annual tax records.

2. The IRS may send a letter or notice for a variety of very different reasons.  Typically, a letter or notice is only about one specific issue on a taxpayer’s federal tax return or about the taxpayer’s tax account.   A notice may simply inform the taxpayer about changes to the tax account or only ask you for more information about an item on the tax return.  However, it may inform the taxpayer that a tax payment is due.

3. A taxpayer may receive a notice that states the IRS has made a change or correction to the tax return.  In this case, the taxpayer should review the information received and then compare it with the original tax return.  If the taxpayer agrees with the IRS notice, then the taxpayer usually does not need to reply except to make a payment.

4. However, if the taxpayer does not agree with the notice, then the taxpayer must respond.  The taxpayer must write a letter to explain why the taxpayer disagrees with the IRS notice, including any information and documents that supports the taxpayer’s position.  The taxpayer must mail a reply, with the bottom tear-off portion of the notice, to the address shown in the upper left-hand corner of the notice.  Allow at least 30 days for a response.

5. A taxpayer does not need to call or visit an IRS office for most notices.  However, if a taxpayer has questions, then call the phone number in the upper right-hand corner of the notice. Have a copy of the tax return and the notice for the call.

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.” said Rick Kravitz.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  2014 expanded sections on Limitations on Loss Deductions, Charitable Gifts, Reverse Mortgages, and REITs.

 

Posted in Taxation | Tagged: , , , , , | Leave a Comment »

IRS list of IGA Countries revised last night

Posted by William Byrnes on June 24, 2014


Posted in Uncategorized | Leave a Comment »

 
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