Archive for June, 2014

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?

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: AML, BNP, BNP Paribas, IRAN, Money Laundering, OFAC, SUdan | 5 Comments »

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

Posted by William Byrnes on June 30, 2014

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

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

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 1^st)

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 1^st.

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

FFIs that registered by June 3^rd. 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 30^th?

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 1^st 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)

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

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

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

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 5

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

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

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 https://profwilliambyrnes.com/2014/06/18/new-offshore-voluntary-disclosure-program-ovdp-announced-with-50-penalty/

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

Complying with FATCA?

The LexisNexis® Guide to FATCA Compliance (2^nd 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

Posted in FATCA | Tagged: FATCA, FBAR, FINCEN, FinCEN Report 114, Form 8938 | Leave a Comment »

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”

Posted in Retirement Planning, Taxation | Tagged: Health care, HSA, Retirement | Leave a Comment »

Analysis of FATCA 2014 1042-S Instruction’s

Posted by William Byrnes on June 28, 2014

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

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.

Lexis Guide to FATCA Compliance – 2015 Edition

1,200 pages of analysis of the compliance challenges, over 54 chapters by 70 FATCA contributing experts from over 30 countries. Besides in-depth, practical analysis, the 2015 edition includes examples, charts, time lines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers. The Lexis Guide to FATCA Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments. No filler of forms and regs – it’s all beef ! See Lexis’ order site and request a copy of the forthcoming 2015 edition – http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

A free download of the first of the 34 chapters is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

<— Subscribe by email on the left menu to the FATCA Updates on this blog: https://profwilliambyrnes.com/category/fatca/

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”

Chapter 1 Background and Current Status of FATCA
Chapter 1A The International Financial System and FATCA
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 2A FATCA Internal Policy
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 4A FATCA Customer Outreach
Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
Chapter 6 Determining U.S. Ownership of Foreign Entities
Chapter 7 Foreign Financial Institutions
Chapter 7A Account reporting under FATCA
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FATCA and the Offshore Trust Industry
Chapter 10 FATCA and the Insurance Industry
Chapter 11 Withholding and Qualified Intermediary
Chapter 12 FATCA Withholding Compliance
Chapter 13 “Withholdable” Payments
Chapter 13A Reporting Payments
Chapter 14 Determining and Documenting the Payee
Chapter 14A W8 Equivalents
Chapter 15 Framework of Intergovernmental Agreements
Chapter 16 Analysis of Current Intergovernmental Agreements
Chapter 17 European Union Cross Border Information Reporting
Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
Chapter 19 Germany
Chapter 20 Ireland
Chapter 21 Japan
Chapter 22 Mexico
Chapter 23 Switzerland
Chapter 24 United Kingdom
Chapter 25 Brazil
Chapter 26 British Virgin Islands
Chapter 27 Canada
Chapter 28 Spain
Chapter 29 China
Chapter 30 Netherlands
Chapter 31 Luxembourg
Chapter 32 Russia
Chapter 33 Turkey
Chapter 34 India
Chapter 35 Argentina
Chapter 36 Aruba
Chapter 37 Australia
Chapter 38 Bermuda
Chapter 39 Colombia
Chapter 40 Cyprus
Chapter 41 Hong Kong
Chapter 42 Macau
Chapter 43 Portugal
Chapter 44 South Africa
Chapter 45 France
Chapter 46 Gibraltar
Chapter 47 Guernsey
Chapter 48 Italy

Posted in FATCA | Tagged: 1042-S, 1042-S instructions, FATCA, FDAP, withholdable payments, withholding | Leave a Comment »

Updated 2014 Qualified Intermediary (QI) Agreement released !

Posted by William Byrnes on June 27, 2014

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

Revenue Procedure 2014-39: Application 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.

Complying with FATCA?

Posted in FATCA | Tagged: FATCA, GIIN, QI, QI Agreement, Qualified Intermediary | 1 Comment »

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?.

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

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

Posted by William Byrnes on June 25, 2014

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

On June 25, 2014 the IRS released the W-8 BEN-E instructions. Read 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: https://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 24^th 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

has registered with the IRS and been assigned a GIIN associated with the legal name of the disregarded entity;
is a reporting Model 1 FFI or reporting Model 2 FFI; and
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.

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).
Participating FFI.
Reporting Model 1 FFI.
Reporting Model 2 FFI.
Registered deemed-compliant FFI (other than a reporting Model 1 FFI or sponsored FFI that has not obtained a GIIN).
Sponsored FFI that has not obtained a GIIN. Complete Part IV.
Certified deemed-compliant nonregistering local bank. Complete Part V.
Certified deemed-compliant FFI with only low-value accounts. Complete Part VI.
Certified deemed-compliant sponsored, closely held investment vehicle. Complete Part VII.
Certified deemed-compliant limited life debt investment entity. Complete Part VIII.
Certified deemed-compliant investment advisors and investment managers. Complete Part IX.
Owner-documented FFI. Complete Part X.
Restricted distributor. Complete Part XI.
Nonreporting IGA FFI (including an FFI treated as a registered deemed-compliant FFI under an applicable Model 2 IGA). Complete Part XII.
Foreign government, government of a U.S. possession, or foreign central bank of issue. Complete Part XIII.
International organization. Complete Part XIV.
Exempt retirement plans. Complete Part XV.
Entity wholly owned by exempt beneficial owners. Complete Part XVI.
Territory financial institution. Complete Part XVII.
Nonfinancial group entity. Complete Part XVIII.
Excepted nonfinancial start-up company. Complete Part XIX.
Excepted nonfinancial entity in liquidation or bankruptcy. Complete Part XX.
501(c) organization. Complete Part XXI.
Nonprofit organization. Complete Part XXII.
Publicly traded NFFE or NFFE affiliate of a publicly traded corporation. Complete Part XXIII.
Excepted territory NFFE. Complete Part XXIV.
Active NFFE. Complete Part XXV.
Passive NFFE. Complete Part XXVI as well as Part XXX if substantial U.S. owners*.
Excepted inter-affiliate FFI. Complete Part XXVII.
Direct reporting NFFE.
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.

Lexis Guide to FATCA Compliance – 2015 Edition

A free download of the first of the 34 chapters is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

<— Subscribe by email on the left menu to the FATCA Updates on this blog: https://profwilliambyrnes.com/category/fatca/

Chapter 1 Background and Current Status of FATCA
Chapter 1A The International Financial System and FATCA
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 2A FATCA Internal Policy
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 4A FATCA Customer Outreach
Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
Chapter 6 Determining U.S. Ownership of Foreign Entities
Chapter 7 Foreign Financial Institutions
Chapter 7A Account reporting under FATCA
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FATCA and the Offshore Trust Industry
Chapter 10 FATCA and the Insurance Industry
Chapter 11 Withholding and Qualified Intermediary
Chapter 12 FATCA Withholding Compliance
Chapter 13 “Withholdable” Payments
Chapter 13A Reporting Payments
Chapter 14 Determining and Documenting the Payee
Chapter 14A W8 Equivalents
Chapter 15 Framework of Intergovernmental Agreements
Chapter 16 Analysis of Current Intergovernmental Agreements
Chapter 17 European Union Cross Border Information Reporting
Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
Chapter 19 Germany
Chapter 20 Ireland
Chapter 21 Japan
Chapter 22 Mexico
Chapter 23 Switzerland
Chapter 24 United Kingdom
Chapter 25 Brazil
Chapter 26 British Virgin Islands
Chapter 27 Canada
Chapter 28 Spain
Chapter 29 China
Chapter 30 Netherlands
Chapter 31 Luxembourg
Chapter 32 Russia
Chapter 33 Turkey
Chapter 34 India
Chapter 35 Argentina
Chapter 36 Aruba
Chapter 37 Australia
Chapter 38 Bermuda
Chapter 39 Colombia
Chapter 40 Cyprus
Chapter 41 Hong Kong
Chapter 42 Macau
Chapter 43 Portugal
Chapter 44 South Africa
Chapter 45 France
Chapter 46 Gibraltar
Chapter 47 Guernsey
Chapter 48 Italy

Posted in FATCA, W-8BEN-E | Tagged: FATCA, FFI, IGA, NFFE, W-8BEN- E instructions, W-8BEN-E, W-9, Withholding tax | 3 Comments »

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 25^th (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 2^nd 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 1^st. 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)

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

Afghanistan: 7
Andorra: 34
Anguilla: 71
Antigua & Barbuda: 36
Argentina: 270
Armenia: 28 <– IGA
Aruba: 14
Australia: 1,865 <– IGA
Austria: 2,979
Azerbaijan: 17 <– IGA
Bahamas: 611 <– IGA
Barbados: 124 <– IGA
Belgium: 250 <– IGA
Belarus: 65
Belize: 123
Bermuda: 1,243
Brazil: 2,259 <– IGA
Bulgaria: 73
BVI: 1,838 <– IGA
Canada: 2,265 <– IGA
Cayman Islands: 14,837 <– IGA
China: 212
Christmas Island: 1
Colombia: 173 <– IGA
Comoros Is.: 1
Costa Rica: 123 <– IGA
Cook Is.: 73
Croatia: 51 <– IGA
Curacao: 174 <– IGA
Cyprus: 280 <– IGA
Czech Republic: 93 <– IGA
Denmark: 187 <– IGA
Djibouti: 1
Dominica: 17 <– IGA
Dominican Republic: 68
Ecuador: 22
Egypt: 63
Equatorial Guinea: 1
Estonia: 27 <– IGA
Falkland Islands: 1
Finland: 467 <– IGA
France: 2,290 <– IGA
French Southern Territories: 1
Georgia: 24 <– IGA
Germany: 2,555 <– IGA
Gibraltar: 97 <– IGA
Greece: 92
Greenland: 1
Grenada: 32
Guadeloupe: 1
Guam: 3
Guatemala: 76
Guernsey: 2,396 <– IGA
Honduras: 48 <– IGA
Hong Kong: 1,540 <– IGA
Hungary: 102 <– IGA
Iceland: 5
India: 247 <– IGA
Indonesia: 308 <– IGA
Ireland: 1,757 <– IGA
Isle of Man: 313 <– IGA
Israel: 322 <– IGA
Italy: 457 <– IGA
Jamaica: 42 <– IGA
Japan: 3,252 <– IGA
Jersey: 1,619 <– IGA
North Korea: 4
South Korea: 397
Kuwait: 78
Latvia: 41
Lichtenstein: 240 <– IGA
Lithuania: 22 <– IGA
Luxembourg: 3,561 <– IGA
Macao: 37
Malta: 236 <– IGA
Mauritius: 728 <– IGA
Mexico: 419 <– IGA
Monaco: 99
Netherlands: 2,054 <– IGA
New Zealand: 335 <– IGA
Norway: 313 <– IGA
Other: 23
Panama: 451 <– IGA
Paraguay: 17 <– IGA
Peru: 165 <– IGA
Poland: 165 <– IGA
Portugal: 256 <– IGA
Qatar: 47 <– IGA
Romania: 110 <– IGA
Russia: 515
Saint Pierre & Miquelon: 1
San Marino: 15
Saudi Arabia: 18 <–IGA
Seychelles: 38 <– IGA
Singapore: 784 <– IGA
South Africa: 318 <– IGA
Spain: 1,188 <– IGA
Slovakia: 55 <– IGA
Slovenia: 21 <– IGA
St Kitts & Nevis: 71 <– IGA
St Lucia: 61 <– IGA
St. Vincent and the Grenadines: 105 <– IGA
Sweden: 313 <– IGA
Switzerland: 4,041 <– IGA
Taiwan: 409 <- IGA
Thailand: 768 <-IGA
Timor-Leste: 1
Togo: 4
Tonga: 1
Turkey: 66 <– IGA
Turkmenistan: 1 <-– IGA
Turks & Caicos: 28 <– IGA
Ukraine: 106
United Arab Emirates: 136 <– IGA
United Kingdom: 6,264 <– IGA
USA: 563
Uruguay: 132
Venezuela: 30
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 5^th and 2^nd). 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)

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

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

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

Model 2 IGA – 4

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

Practical Compliance Guide for FATCA

Posted in FATCA | Tagged: FATCA, FFI, GIIN, IGA, Withholding tax | 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.

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Posted in Taxation | Tagged: 1040, IRS, tax letter, Tax lien, tax notice, tax return | 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 »

FFI Agreements Amended by IRS One Week Before Withholding Starts

Posted by William Byrnes on June 24, 2014

On June 24, 2014 the IRS released an updated version of the FATCA FFI Agreement for Participating FFI and Reporting Model 2 FFI, just one week before FATCA withholding begins July 1st. The previous FFI agreement version was released January 13^th as Revenue Procedure 2014-13 (see my article link).

The IRS has updated the FFI agreement make it consistent with the coordination temporary regulations under chapter 4 of the Code, chapters 3 and 61 of the Code, and section 3406, which were released on February 20, 2014. (link to my article on these US Withholding and Documentation Rules changes).

This revenue procedure also provides guidance to FFIs and branches of FFIs treated as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA) (reporting 2 Model 2 FFIs) on complying with the terms of the FFI agreement, as modified by the Model 2 IGA. The FFI agreement does not apply to a reporting Model 1 FFI, or any branch of such an FFI, unless the reporting Model 1 FFI has registered a branch located outside of a Model 1 IGA jurisdiction so that such branch may be treated as a participating FFI or reporting Model 2 FFI. In such a case, the terms of the applicable FFI agreement apply to the operations of such branch.

A reporting Model 2 FFI should apply the FFI agreement by substituting the term “reporting Model 2 FFI” for “participating FFI” throughout the FFI agreement, except in cases where the FFI agreement explicitly refers to a reporting Model 2 FFI. The FFI agreement in section 5 of this revenue procedure shall apply to an FFI that has submitted a FATCA registration with the IRS to be treated as a participating FFI (including a reporting Model 2 FFI) and that has received a global intermediary identification number (GIIN), regardless of whether the FFI receives a GIIN before or after the effective date of this revenue procedure.

How Many FFIS are Impacted by this Change?

About 26% (19,960) of the registered FFIs are impacted by the FFI agreement changes, in addition to any new registrations from the current 9 Model 2 countries/jurisdictions and 171 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.

Of this total registered, 71,219 FFIs (92%) registered from the 79 countries and jurisdictions that as of June 23^rd have an IGA. 57,393 FFIs registered from Model I IGA jurisdictions probably either as a category of a Model 1 Deemed Compliant FFI or as a branch. However, 13,826 of these registered as Model 2 reporting FFIs or branches. At least these 13,826 are impacted by the FFI Agreement changes.

Model 2 IGAs – 9 (13,826 FFI Registered)

Armenia (5-8-2014): 27
Austria (4-29-2014): 2,978
Bermuda (12-19-2013): 1,242
Chile (3-5-2014): 324
Hong Kong (5-9-2014): 1.539
Japan (6-11-2013): 3,251
Paraguay (6-6-2014): 17
Switzerland (2-14-2013): 4,040
Taiwan: 408

Non IGA Registrations (Participating FFI and other)

Only 6,134 FFIs registered from the remaining non-IGA countries / jurisdictions either as Participating FFIs or branches. These 6,134 are also impacted by the FFI agreement changes.

45 countries and jurisdictions did not have a single FFI or branch registration on the GIIN List. Presumably, FFIs and / or branches from these countries, such as Kosovo, will find their way unto the July 1^st GIIN list.

Meanwhile, 30% withholding on all withholdable payments to nonparticipating FFIs in the 171 non-IGA countries begins next week on July 1. 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).

Updates to FFI Agreement

Definitions

Several definitions in section 2 of the FFI agreement are updated. For example, the terms chapter 4 withholding rate pool (including the U.S. payee pool) and chapter 4 reporting pool have been redefined and are further clarified.

Incorporating Six Month Extension for Entities

Section 3.02 of the FFI agreement is revised to incorporate the allowance for treating an obligation held by an entity that is issued, opened, or executed on or after July 1, 2014, and before January 1, 2015 as a preexisting obligation for purposes of applying the due diligence procedures under chapter 4 and the regulations thereunder, except that an FFI may not apply the documentation exception.

Back Up Withholding in Certain Situations

Sections 4.01(D), 4.02(B), 6.05(A)(2), 6.07, and 9.02(B) of the FFI agreement are also updated to reflect that a participating FFI may elect to backup withhold under section 3406 rather than to withhold under chapter 4 on a withholdable payment that is a reportable payment made to certain U.S. non-exempt recipients only if the participating FFI complies with the information reporting rules under chapter 61 with respect to payments made to such account holders.

Depositing Withheld Tax

In addition, section 5.02 of the FFI agreement (regarding tax withheld and set aside in escrow with respect to withholdable payments to certain dormant accounts) is revised to conform to the temporary chapter 4 regulations for when the tax must be deposited.

Lead FFI Responsibility

Section 11.02(B) of the FFI agreement is revised to clarify that the responsibilities of a lead FI are only with respect to members of the FFI group that have designated the participating FFI to act as lead FI on their behalf. Additionally, if an FFI group has a consolidated compliance program, the participating FFI that is also the compliance FI for the members of the FFI group that are included in such compliance program must act as the lead FI for each such member of the FFI group.

PFFI Reporting NFFE Account Holder as a U.S. Account

Section 9.02(B) of the FFI agreement also is revised to allow a participating FFI that receives a withholdable payment that is allocable to an account holder of the FFI that is a passive NFFE with one or more substantial U.S. owner(s) (or, in the case of a reporting Model 2 FFI, with one or more controlling persons as defined under the applicable IGA) to certify on a withholding statement provided to the withholding agent that the FFI is reporting the account holder as a U.S. account under the terms of the FFI agreement.

When finalizing the temporary chapter 4 regulations, the Treasury Department and the IRS intend to amend the regulations to allow a withholding agent to rely on such a certification provided by a participating FFI, reporting Model 2 FFI, or reporting Model 1 FFI, which, absent a reason to know that the certificate is incorrect or unreliable, would relieve the withholding agent of its obligation to obtain and report information about a passive NFFE with substantial U.S. owners under section 1472. This amendment is intended to eliminate duplicative reporting of substantial U.S. owners (or controlling persons) of passive NFFEs required under section 1472 as well as under the U.S. account reporting requirements of a participating FFI, reporting Model 2 FFI, or reporting Model 1 FFI under chapter 4 or an applicable IGA.

Portional Allocation of Withholdable Payments

Section 9.02(B) is also revised to provide that a participating FFI may allocate a portion of a withholdable payment to a group of documented account holders (other than nonqualified intermediaries or flow-through entities) for whom withholding and reporting is not required under chapter 3, 4, or 61. For example, a participating FFI may allocate a payment of bank deposit interest to a pool of documented foreign account holders rather than providing specific information and a valid withholding certificate or other appropriate documentation for each such payee. The Treasury Department and the IRS intend to amend the regulations to incorporate this change when the temporary chapter 4 regulations are finalized.

FFI Agreement Sections

Section 1. Purpose And Scope
Section 2. Definitions
Section 3. Due Diligence Requirements For Documentation And Identification Of Account Holders And Nonparticipating FFI Payees
Section 4. Withholding Requirements
Section 5. Deposit Requirements
Section 6. Information Reporting And Tax Return Obligations
Section 7. Legal Prohibitions On Reporting U.S. Accounts And On Withholding
Section 8. Compliance Procedures
Section 9. Participating FFI Withholding Certificate
Section 10. Adjustments For Overwithholding And Underwithholding And Refunds
Section 11. FFI Group
Section 12. Expiration, Modification, Termination, Default, And Renewal Of This Agreement
Section 13. Miscellaneous Provisions

Practical Compliance Aspects of FATCA and GATCA

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Posted in FATCA | Tagged: FATCA, FFI agreement, IGA, Model 2 IGA, NFFE, participating FFI, reporting FFI, withholding | 2 Comments »

New 2014 FATCA Form W-8IMY and Instructions Analysis

Posted by William Byrnes on June 24, 2014

W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting)

On June 19, 2014 the IRS released the new Form W-8IMY instructions.

Form W-8IMY is submitted generally by a payment recipient (the “filer”) 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. Form W-8IMY requires a tax identification number.

The new Form W-8IMY has 28 parts whereas the previous August 2013 FATCA draft W-8IMY only contained 26. The new 2014 Form W-8IMY is vastly different from the seven-part 2006 predecessor form.

Filing Form W-8IMY with the withholding agent before payment.

The filer does not send Form W-8IMY to the IRS. Instead, the filer gives it to the withholding agent who is requesting it. Generally, this withholding agent will be the one from whom the filer receives a payment, who credits the filer’s account, or a partnership that allocates income to the filer. The filer should give Form W-8IMY to the withholding agent requesting it before income is paid, credited, or allocated to the filer account.

Form W-8IMY by Part

Part I Identification of Entity
Part II Disregarded Entity or Branch Receiving Payment.

Part I of the W8-IMY Form adds FATCA classification. Part I of the form requires general information, the Chapter 3 QI status, and the Chapter 4 FATCA classification of the filer.

Question 4 of Part I requests the QI status:

If the filer is a Qualified Intermediary, then the filer must complete Part III Qualified Intermediary. If the filer is a Nonqualified Intermediary, then the filer must complete Part IV Nonqualified Intermediary.
Territory Financial Institutions complete Part V. U.S. Branches complete Part VI.
Withholding Foreign Partnership or Withholding Foreign Trusts complete Part VII.
Nonwithholding Foreign Partnership, Nonwithholding Foreign Simple Trust, and Nonwithholding foreign grantor trusts must complete Part VIII.

Question 5 requests the FATCA classification of the filer of 25 potential classifications. The classification indicated determines which one of the further W-8IMY Parts IX through XXVII must be completed.

Nonparticipating FFI (including a limited FFI or limited branch). Complete Part IX (if applicable).
Participating FFI.
Reporting Model 1 FFI.
Reporting Model 2 FFI.
Registered deemed-compliant FFI (other than a reporting Model 1 FFI or sponsored FFI that has not obtained a GIIN).
Territory financial institution. Complete Part V.
Sponsored FFI that has not obtained a GIIN (other than a certified deemed-compliant sponsored, closely held investment vehicle). Complete Part X.
Certified deemed-compliant nonregistering local bank. Complete Part XII.
Certified deemed-compliant FFI with only low-value accounts. Complete Part XIII.
Certified deemed-compliant sponsored, closely held investment vehicle. Complete Part XIV.
Certified deemed-compliant limited life debt investment entity. Complete Part XV.
Owner-documented FFI. Complete Part XI.
Restricted distributor. Complete Part XVI.
Foreign central bank of issue. Complete Part XVII.
Nonreporting IGA FFI. Complete Part XVIII.
Exempt retirement plans. Complete Part XIX.
Excepted nonfinancial group entity. Complete Part XX.
Excepted nonfinancial start-up company. Complete Part XXI.
Excepted nonfinancial entity in liquidation or bankruptcy. Complete Part XXII.
Publicly traded NFFE or NFFE affiliate of a publicly traded corporation. Complete Part XXIII.
Excepted territory NFFE. Complete Part XXIV.
Active NFFE. Complete Part XXV.
Passive NFFE. Complete Part XXVI.
Direct reporting NFFE.
Sponsored direct reporting NFFE. Complete Part XXVII.

Part II of the W-8IMY is to be completed if the entity is a disregarded entity or a branch receiving payment as an intermediary. Part II only applies to branches of an FFI outside the FFI’s country of residence.

Who Must File W-8IMY?

An entity should provide Form W-8IMY when receiving a reportable amount or withholdable payment on behalf of another person or as a flow-through entity.

A foreign person, or a foreign branch of a U.S. person, to establish that it is a qualified intermediary that is not acting for its own account, to represent that it has provided or will provide a withholding statement, as required, or, if applicable, to represent that it has assumed primary withholding responsibility under chapters 3 and 4 of the Code and/or primary Form 1099 reporting and backup withholding responsibility.
A foreign person to establish that it is a nonqualified intermediary that is not acting for its own account, to certify its chapter 4 status (if required), to certify whether it reports U.S. accounts under chapter 4 (if required), and to indicate, if applicable, that it is using the form to transmit withholding certificates and/or other documentary evidence and has provided, or will provide, a withholding statement, as required. A U.S. person cannot be a nonqualified intermediary.
A U.S. branch that is acting as an intermediary to represent that the income it receives is not effectively connected with the conduct of a trade or business within the United States and either that it is using the form (a) to evidence it is treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A) with respect to any payments associated with the Form W-8IMY, or (b) to certify to its chapter 4 status and to transmit the documentation of the persons for whom it receives a payment and has provided, or will provide, a withholding statement, as required.
A financial institution incorporated or organized under the laws of a U.S. territory that is acting as an intermediary or is a flow-through entity to represent that it is a financial institution (other than an investment entity that is not also a depository institution, custodial institution, or specified insurance company) and either that it is using the form (a) to evidence it is treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A) with respect to any payments associated with the Form W-8IMY, or (b) to certify that it is transmitting documentation of the persons for whom it receives a payment and has provided, withholding statement, as required.
A foreign partnership or a foreign simple or grantor trust to establish that it is a withholding foreign partnership or withholding foreign trust under the regulations for sections 1441 and 1442 and to certify its chapter 4 status (if required).
A foreign partnership or a foreign simple or grantor trust to establish that it is a nonwithholding foreign partnership or nonwithholding foreign simple or grantor trust for purposes of sections 1441 and 1442, to certify to its chapter 4 status (if required), and to represent that the income is not effectively connected with a U.S. trade or business, that the form is being used to transmit withholding certificates and/or documentary evidence, and that it has provided or will provide a withholding statement as required.
A foreign partnership or foreign grantor trust to establish that it is an upper-tier foreign partnership or foreign grantor trust for purposes of section 1446 and to represent that the form is being used to transmit withholding certificates and/or documentary evidence and that it has provided, or will provide, a withholding statement, as required.
A flow-through entity (including a foreign reverse hybrid entity) transmitting withholding certificates and/or other documentary evidence to claim treaty benefits on behalf of its owners, to certify its chapter 4 status (if required), and to certify that it has provided, or will provide, a withholding statement, as required.
A nonparticipating FFI acting as an intermediary or that is a flow-through entity using this form to transmit a withholding statement and withholding certificates or other documentation for exempt beneficial owners described in Regulations section 1.1471-6.
A QSL certifying to a withholding agent that it is acting as a QSL with respect to U.S. source substitute dividends received from the withholding agent pursuant to a securities lending transaction (as described in Notice 2010-46).
A foreign intermediary or flow-through entity not receiving withholdable payments or reportable amounts that is holding an account with a participating FFI or registered deemed-compliant FFI providing this form for purposes of documenting the chapter 4 status of the account holder. However, no withholding statement is required to be provided along with Form W-8IMY if it is being provided by an FFI solely to document such an account when no withholdable payments or reportable amounts are made to the account. Also note that the entity may instead provide Form W-8BEN-E when it is not receiving withholdable payments or reportable amounts to document its status as an account holder.

Partnership allocations

Form W-8IMY may be submitted and accepted to satisfy documentation requirements for purposes of withholding on certain partnership allocations to foreign partners under section 1446. Section 1446 generally requires withholding when a partnership is conducting a trade or business in the United States and allocates income effectively connected with that trade or business (ECI) to foreign persons that are partners in the partnership. Section 1446 can also apply when certain income is treated as effectively connected income of the partnership and is so allocated.

Chapter 3 and Chapter 4 status Certification by Filer required with Applicable Documentation

In general, intermediaries and flow-through entities receiving reportable amounts will be required to provide both their chapter 3 status and the chapter 3 status of persons for whom they receive such payments.

An intermediary or flow-through entity receiving a withholdable payment will also be required to provide its chapter 4 status and the chapter 4 status of persons for whom it receives a withholdable payment when required for chapter 4 purposes.

Parts III – VIII: Chapter 3 Status Certifications

Parts III – VIII of this form address the QI Status of the entity.

Part III Qualified Intermediary
Part IV Nonqualified Intermediary
Part V Territory Financial Institution
Part VI Certain U.S. Branches
Part VII Withholding Foreign Partnership (WP) or Withholding Foreign Trust (WT)
Part VIII Nonwithholding Foreign Partnership, Simple Trust, or Grantor Trust

Part III is to be completed if the entity is a QI, and requires the entity to certify that it is a QI and has provided appropriate documentation. Part IV is to be completed if the entity is a Nonqualified Intermediary (NQI), and requires the entity to certify that it is a NQI not acting for its own account. Part V is to be completed if the entity is a Territory Financial Institution. Part VI is to be completed by a U.S. branch only if the branch certifies on the form that it is the U.S. branch of a U.S. bank or insurance company, and that the payments made are not effectively connected to a U.S. trade or business. Part VII is to be completed if the entity is a Foreign Withholding Partnership (WP) or a Withholding Foreign Trust (WT). Part VIII is to be completed if the entity is either a Nonwithholding Foreign Partnership, Simple Trust, or Grantor Trust.

Parts IX – XXVI: Chapter 4 Status Certifications

Parts IX – XXVI of this form address the filer certifying the FATCA Status of the entity, beginning with a check the box selection of “I certify that …”, followed by the definition components of each classification. These classifications include the new classification of a Restricted Distributor (Part XVI), but do not include the new classification of a Reporting NFFE.

Part IX Nonparticipating FFI with Exempt Beneficial Owners
Part X Sponsored FFI That Has Not Obtained a GIIN
Part XI Owner-Documented FFI
Part XII Certified Deemed-Compliant Nonregistering Local Bank
Part XIII Certified Deemed-Compliant FFI with Only Low-Value Accounts
Part XIV Certified Deemed-Compliant Sponsored, Closely Held Investment Vehicle
Part XV Certified Deemed-Compliant Limited Life Debt Investment Entity
Part XVI Restricted Distributor
Part XVII Foreign Central Bank of Issue
Part XVIII Nonreporting IGA FFI
Part XIX Exempt Retirement Plans
Part XX Excepted Nonfinancial Group Entity
Part XXI Excepted Nonfinancial Start-Up Company
Part XXII Excepted Nonfinancial Entity in Liquidation or Bankruptcy
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 Sponsored Direct Reporting NFFE

Part IX is not required to be completed unless the filer is a nonparticipating FFI providing documentation on behalf of an exempt beneficial owner (by example, a local qualifying retirement fund).

Part XI – An owner-documented FFI should only complete Form W-8IMY if it is a flow-through entity receiving income allocable to its partners, owners, or beneficiaries. An owner-documented FFI is not permitted to act as an intermediary with respect to a withholdable payment.

Part XVIII – A nonreporting FFI pursuant to an IGA must indicate that it is to be treated as such under an applicable IGA, including an entity treated as a registered deemed-compliant FFI under an applicable IGA. The nonreporting IGA FFI must identify the applicable IGA by entering the name of the jurisdiction that has the applicable IGA in effect with the United States. It must also provide the withholding agent with the class of entity described in Annex II of the IGA applicable to its nonreporting FFI IGA status. If the nonreporting FFI IGA is claimed pursuant to a Model 2 IGA, then the FFI treated as a registered deemed-compliant FFI under that applicable Model 2 IGA must provide a GIIN in the space provided.

If the filer is a sponsored FFI in a Model 1 IGA jurisdiction or other nonreporting FFI in a Model 1 IGA jurisdiction that is required to report an account, it is not currently required to provide a GIIN in this Part. However, a future version of this form may require it to provide a GIIN.

Entities Providing Certifications Under an Applicable IGA

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

determine that the certification accurately reflects the status for chapter 4 purposes or under an applicable IGA; and
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.

The filer may also provide with this form an applicable IGA certification if it determines its 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 filer status as an NFFE or FFI in accordance with the applicable IGA. However, if the filer determines its status under an applicable IGA as an NFFE, it must still determine if it is an excepted NFFE under the regulations in order to complete this form. Additionally, it is required to comply with the conditions of its chapter 4 status under the law of the IGA jurisdiction if it determines its status under an applicable IGA.

Entities Providing Alternate Certifications Under Regulations

If the filer qualifies for a chapter 4 status that is not shown in Part I, line 5, of this form, it may attach applicable certifications for such status from any other Form W-8 on which the relevant certifications appear.

For example, if the filer is a certified deemed-compliant investment advisor or investment manager described in Regulations section 1.1471-5(f)(2)(v)
that is a flow-through entity, it may instead attach the certifications found in Part IX of Form W-8BEN-E.

If the applicable certifications do not appear on any Form W-8 (if, for example, new regulations provide for an additional chapter 4 status and this form has not been updated) then the filer may provide an attachment certifying that it qualifies for the applicable status described in a particular Regulations section in lieu of checking a box in Part I, line 5. The filer must also include a citation to the applicable provision in the Regulations.

Final Statement of Certification

Part XXVIII requires certification, under penalty of perjury, by the payee or a person authorized to sign on the payee’s behalf. Finally, the form contains the following language: “I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect.”

Expiration of Form W-8IMY

Generally, a Form W-8IMY remains valid until the status of the person whose name is on the certificate is changed in a way relevant to the certificate or there is a change in circumstances that makes the information on the certificate no longer correct. The indefinite validity period does not extend, however, to any other withholding certificates, documentary evidence, or withholding statements associated with the certificate.

Change in circumstances.

If a change in circumstances makes any information on the Form W-8IMY (or any documentation or a withholding statement associated with the Form W-8IMY) have submitted incorrect for purposes of chapter 3 or chapter 4 (when relevant), the intermediary must notify the withholding agent within 30 days and file a new Form W-8IMY or provide new documentation or a new withholding statement (as applicable).

The information associated with Form W-8IMY must be updated as often as is necessary to enable the withholding agent to withhold at the appropriate rate on each payment and to report such income.

(See Regulations sections 1.1441-1(e)(4)(ii)(D) for the definition of a change in circumstances for purposes of chapter 3. See Regulations section 1.1471-3(c)(6)(ii)(E) for the definition of a change in circumstances for purposes of chapter 4.)

Part XXVII Sponsored Direct Reporting NFFE

Lexis Guide to FATCA Compliance – 2015 Edition

A free download of the first of the 34 chapters is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

<— Subscribe by email on the left menu to the FATCA Updates on this blog: https://profwilliambyrnes.com/category/fatca/

Chapter 1 Background and Current Status of FATCA
Chapter 1A The International Financial System and FATCA
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 2A FATCA Internal Policy
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 4A FATCA Customer Outreach
Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
Chapter 6 Determining U.S. Ownership of Foreign Entities
Chapter 7 Foreign Financial Institutions
Chapter 7A Account reporting under FATCA
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FATCA and the Offshore Trust Industry
Chapter 10 FATCA and the Insurance Industry
Chapter 11 Withholding and Qualified Intermediary
Chapter 12 FATCA Withholding Compliance
Chapter 13 “Withholdable” Payments
Chapter 13A Reporting Payments
Chapter 14 Determining and Documenting the Payee
Chapter 14A W8 Equivalents
Chapter 15 Framework of Intergovernmental Agreements
Chapter 16 Analysis of Current Intergovernmental Agreements
Chapter 17 European Union Cross Border Information Reporting
Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
Chapter 19 Germany
Chapter 20 Ireland
Chapter 21 Japan
Chapter 22 Mexico
Chapter 23 Switzerland
Chapter 24 United Kingdom
Chapter 25 Brazil
Chapter 26 British Virgin Islands
Chapter 27 Canada
Chapter 28 Spain
Chapter 29 China
Chapter 30 Netherlands
Chapter 31 Luxembourg
Chapter 32 Russia
Chapter 33 Turkey
Chapter 34 India
Chapter 35 Argentina
Chapter 36 Aruba
Chapter 37 Australia
Chapter 38 Bermuda
Chapter 39 Colombia
Chapter 40 Cyprus
Chapter 41 Hong Kong
Chapter 42 Macau
Chapter 43 Portugal
Chapter 44 South Africa
Chapter 45 France
Chapter 46 Gibraltar
Chapter 47 Guernsey
Chapter 48 Italy

Posted in FATCA | Tagged: FATCA, FFI, W-8IMY | 6 Comments »

11 health insurance tax facts a taxpayer needs to know about

Posted by William Byrnes on June 24, 2014

Employers and those who advise them may have questions about what expenses qualify for deductions, which tax credits they can take advantage of, and what the new rules mean for grandfathered plans. Individuals may be wondering how HSA distributions are taxed, or whether benefits received under a personal health insurance policy are taxable.

1. Are premiums paid for personal health insurance deductible as medical expenses?

2. May an employer deduct as a business expense the cost of premiums paid for accident and health insurance for employees?

3. What credit is available for small employers for employee health insurance expenses?

4. Are benefits received under a personal health insurance policy taxable income?

5. How is employer-provided disability income coverage taxed?

6. How is personal disability income coverage taxed?

… William Byrnes and Robert Bloink have the well-researched answers you’re looking for on LifeHealthPro !

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

Posted in Taxation, Uncategorized | Tagged: ACA, Health insurance, Obama Care, tax facts | Leave a Comment »

Big Law Ramps Up Hiring

Posted by William Byrnes on June 23, 2014

Wall Street Big Law Journalist Jennifer Smith unveils that big law is ramping up hiring again, with an average starting salary of $160,000 but grueling hours. Read her article and research here at the Wall Street Journal

Posted in Uncategorized | Tagged: big law, Employment, starting salary | Leave a Comment »

Do you Owe a Health Care Coverage Penalty for 2014?

Posted by William Byrnes on June 20, 2014

Deadline to Enroll has Passed

The deadline to enroll in minimum essential health insurance passed on March 30, 2014. According to estimates by the Federal Department of Health and Human Services (HHS), it met its goal of at least 7 million persons enrolling for health care via the health insurance market places established by the federal government on behalf of various states. Some states, such as California, established their own insurance marketplaces, and thus it is likely that the 7 million figure has indeed been achieved, if not surpassed.

Did Enough Healthy People Enroll to Pay for The System?

The primary question for the federal government that remains is whether the balance of persons enrolling that are “healthy” individuals who must simply pay the annual premium in 2014 but will not actually take dollars from the medical coverage in 2014, will outweigh the payouts to individuals that will take more from health insurance than they pay in.

But What About the Medicaid Expansion?

Moreover, the Affordable Care Act pushed states to expand the definition of when an individual may be covered by the Medicaid, and thus receive medical care substantively paid for by a combination of the federal and state government. The federal government upfront will provide 90% of a state’s additional medicare cost. The state must shoulder more of this burden in the future though.

How Will This Be Paid For?

How will the federal government pay for its share of the additional medicare costs and for any additional costs associated with this new federally mandated system? Some government officials state that Obama Care is already set up to pay for itself because the medical profession, insurance companies, and taxpayers will pick up the additional costs. Insurance companies will reduce their own administrative costs, the medical profession will offer its services at cheaper prices, and Congress has already raised taxes in the forms of the increased medicare payroll tax and medicare tax on investment income.

The New “Shared Responsibility Payment” Tax, Penalty, Fine

But also, Congress imposed a required payment (some pundits call it a penalty, some call it a tax, others a fine like a parking ticket) on taxpayers who do not obtain and maintain health coverage, that will over time increase. As the required penalty increases over the coming years, in principle at least, it should be cheaper for a taxpayer to simply buy the lowest cost health insurance than to pay this penalty. This assumes that the cost of the lowest quality health insurance in these marketplaces does not sky rocket to over come the penalty.

Congress did not call the penalty a “penalty” in the actual law. Instead, Congress used a more ‘voter friendly’ expression “individual shared responsibility payment”.

An Example Decision Maker Deciding What to do in 2014

Other factors will play a role in this decision process, such as a individual’s appetite to take on catastrophic medical risk (like breaking all their bones in an accident) and weighing the cost of the insurance and the required deductible. If an individual’s annual premium will cost by example approximately $7,200 and the annual deductible is $6,000 (this is an actual example from an insurance policy offered via the 2014 California Marketplace), and the individual thinks that it is extremely unlikely that he or she will spend more than $13,200 in medical costs in 2014, then the individual may opt for the “shared responsibility payment”.

If nothing medically happens during 2014, the taxpayer will only owe the contribution, and thus have saved over $13,000! However, if something catastrophic happens in 2014 requiring substantial medical expenses over $13,200, the taxpayer will have been better off with the insurance. Another economic factor in this economic decision making process includes the amount of co-pay required per type of medical procedure. Another factor in the risk decision making process is the individual’s belief of potentially requiring a certain level of medical expenses, such as perhaps just a stomach virus and the likely out of pocket cost of that care, versus breaking a bone.

How much is the penalty for 2014 if a taxpayer did not have “minimum essential coverage’ by March 30, 2014?

If a taxpayer (or any dependents) do not maintain health care coverage and do not qualify for an exemption, then the taxpayer must make an individual shared responsibility payment with the 2014 tax return. In general, this health care coverage penalty is either a percentage of the taxpayer’s income or a flat dollar amount, whichever is greater. High income taxpayers will pay a higher penalty. A taxpayer will owe 1/12th of this penalty for each month of the taxpayer or taxpayer’s dependents gap in coverage. The annual payment amount for 2014 is the greater of:

one percent (1%) of the household income that is above the tax return threshold for the taxpayer’s filing status, such as Married Filing Jointly or single, or
a family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

This individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. The taxpayer will pay the due amount with the 2014 federal income tax return filed in 2015. For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate. However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the one percent rate.

Why greater than $19,650? The filing threshold for a single adult in 2014 is 10,150, subtract that from $19,650, leaving a base amount of $9, 500. Multiply 1% to that base amount and the penalty is $95, the same as the flat rate.

So, from the beginning of this year (January 1, 2014) a taxpayer and the family must either have “qualifying” health insurance coverage throughout the year, qualify for an exemption from coverage, or make the above payment when filing the 2014 federal income tax return in 2015.

What is “Minimum Essential Coverage” Under the Affordable Care Act (“ACA”)?

In Health Care Tax Tip 12, the IRS explained for a taxpayer how to determine if his or her health care coverage qualifies as “minimum essential coverage” to avoid the health care coverage penalty for 2014 that must be paid by April 15, 2015 when filing the tax return.

The Affordable Care Act calls for individuals to have and maintain qualifying health insurance coverage for each month of the year, or have an exemption, or make a shared responsibility payment (pay a ‘penalty’) when filing their federal income tax return next year by April 15, 2015.

Qualifying health insurance coverage, called minimum essential coverage, includes coverage under various, but not all, types of health care coverage plans. The IRS stated that the majority of coverage that people have today counts as minimum essential coverage.

The IRS provided examples of minimum essential coverage:

Health insurance coverage provided by an employer,
Health insurance purchased through the Health Insurance Marketplace,
Coverage provided under a government-sponsored program (including Medicare, Medicaid, and health care programs for veterans), and
Health insurance purchased directly from an insurance company.

Minimum essential coverage does not include coverage providing only limited benefits, such as:

Coverage consisting solely of excepted benefits, such as:
- Stand-alone vision and dental insurance
- Workers’ compensation
- Accident or disability income insurance
Medicaid plans that provide limited coverage such as only family planning services or only treatment of emergency medical conditions.

Due to a number of recent changes in the 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. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

“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.

Posted in Taxation | Tagged: ACA, Affordable Care Act, Obama Care, shared responsibility payment | Leave a Comment »

new Form W-8IMY Instructions released June 19!

Posted by William Byrnes on June 19, 2014

W-8IMY: Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting

On June 19, 2014 the IRS released the new Form W-8IMY instructions.

The new Form W-8IMY has 28 parts whereas the previous August 2013 FATCA draft W-8IMY only contained 26. The new 2014 Form W-8IMY is vastly different from the seven-part 2006 predecessor form.

Who Must File?

An entity should provide Form W-8IMY when receiving a reportable amount or withholdable payment on behalf of another person or as a flow-through entity.

Form W-8IMY must be provided by the following persons:

A foreign person, or a foreign branch of a U.S. person, to establish that it is a qualified intermediary that is not acting for its own account, to represent that it has provided or will provide a withholding statement, as required, or, if applicable, to represent that it has assumed primary withholding responsibility under chapters 3 and 4 of the Code and/or primary Form 1099 reporting and backup withholding responsibility.
A foreign person to establish that it is a nonqualified intermediary that is not acting for its own account, to certify its chapter 4 status (if required), to certify whether it reports U.S. accounts under chapter 4 (if required), and to indicate, if applicable, that it is using the form to transmit withholding certificates and/or other documentary evidence and has provided, or will provide, a withholding statement, as required. A U.S. person cannot be a nonqualified intermediary
A U.S. branch that is acting as an intermediary to represent that the income it receives is not effectively connected with the conduct of a trade or business within the United States and either that it is using the form (a) to evidence it is treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A) with respect to any payments associated with the Form W-8IMY, or (b) to certify to its chapter 4 status and to transmit the documentation of the persons for whom it receives a payment and has provided, or will provide, a withholding statement, as required.
A financial institution incorporated or organized under the laws of a U.S. territory that is acting as an intermediary or is a flow-through entity to represent that it is a financial institution (other than an investment entity that is not also a depository institution, custodial institution, or specified insurance company) and either that it is using the form (a) to evidence it is treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A) with respect to any payments associated with the Form W-8IMY, or (b) to certify that it is transmitting documentation of the persons for whom it receives a payment and has provided, withholding statement, as required.
A foreign partnership or a foreign simple or grantor trust to establish that it is a withholding foreign partnership or withholding foreign trust under the regulations for sections 1441 and 1442 and to certify its chapter 4 status (if required).
A foreign partnership or a foreign simple or grantor trust to establish that it is a nonwithholding foreign partnership or nonwithholding foreign simple or grantor trust for purposes of sections 1441 and 1442, to certify to its chapter 4 status (if required), and to represent that the income is not effectively connected with a U.S. trade or business, that the form is being used to transmit withholding certificates and/or documentary evidence, and that it has provided or will provide a withholding statement as required.
A foreign partnership or foreign grantor trust to establish that it is an upper-tier foreign partnership or foreign grantor trust for purposes of section 1446 and to represent that the form is being used to transmit withholding certificates and/or documentary evidence and that it has provided, or will provide, a withholding statement, as required.
A flow-through entity (including a foreign reverse hybrid entity) transmitting withholding certificates and/or other documentary evidence to claim treaty benefits on behalf of its owners, to certify its chapter 4 status (if required), and to certify that it has provided, or will provide, a withholding statement, as required.
A nonparticipating FFI acting as an intermediary or that is a flow-through entity using this form to transmit a withholding statement and withholding certificates or other documentation for exempt beneficial owners described in Regulations section 1.1471-6.
A QSL certifying to a withholding agent that it is acting as a QSL with respect to U.S. source substitute dividends received from the withholding agent pursuant to a securities lending transaction (as described in Notice 2010-46).
A foreign intermediary or flow-through entity not receiving withholdable payments or reportable amounts that is holding an account with a participating FFI or registered deemed-compliant FFI providing this form for purposes of documenting the chapter 4 status of the account holder. However, no withholding statement is required to be provided along with Form W-8IMY if it is being provided by an FFI solely to document such an account when no withholdable payments or reportable amounts are made to the account. Also note that the entity may instead provide Form W-8BEN-E when it is not receiving withholdable payments or reportable amounts to document its status as an account holder.

Giving Form W-8IMY to the withholding agent. Do not send Form W-8IMY to the IRS. Instead, give it to the person who is requesting it. Generally, this person will be the one from whom you receive the payment, who credits your account, or a partnership that allocates income to you.

When to provide Form W-8IMY to the withholding agent? Give Form W-8IMY to the person requesting it before income is paid, credited, or allocated to your account.

Expiration of Form W-8IMY. Generally, a Form W-8IMY remains valid until the status of the person whose name is on the certificate is changed in a way relevant to the certificate or there is a change in circumstances that makes the information on the certificate no longer correct. The indefinite validity period does not extend, however, to any other withholding certificates, documentary evidence, or withholding statements associated with the certificate.

Change in circumstances. If a change in circumstances makes any information on the Form W-8IMY (or any documentation or a withholding statement associated with the Form W-8IMY) have submitted incorrect for purposes of chapter 3 or chapter 4 (when relevant), the intermediary must notify the withholding agent within 30 days and file a new Form W-8IMY or provide new documentation or a new withholding statement (as applicable).

The information associated with Form W-8IMY must be updated as often as is necessary to enable the withholding agent to withhold at the appropriate rate on each payment and to report such income.

See Regulations sections 1.1441-1(e)(4)(ii)(D) for the definition of a change in circumstances for purposes of chapter 3. See Regulations section 1.1471-3(c)(6)(ii)(E) for the definition of a change in circumstances for purposes of chapter 4.

Chapter 3 and Chapter 4 Status

An intermediary or flow-through entity receiving a withholdable payment will be required to provide its chapter 4 status and the chapter 4 status of persons for whom it receives a withholdable payment when required for chapter 4 purposes.

Partnership Allocations

Form W-8IMY

Part I of the W8-IMY Form adds FATCA classification. Part I of the form requires general information, the Chapter 3 QI status, and the Chapter 4 FATCA classification of the filer.

Question 4 of Part I requests the QI status:

If the filer is a Qualified Intermediary, then the filer must complete Part III Qualified Intermediary. If the filer is a Nonqualified Intermediary, then the filer must complete Part IV Nonqualified Intermediary.
Territory Financial Institutions complete Part V. U.S. Branches complete Part VI.
Withholding Foreign Partnership or Withholding Foreign Trusts complete Part VII.
Nonwithholding Foreign Partnership, Nonwithholding Foreign Simple Trust, and Nonwithholding foreign grantor trusts must complete Part VIII.

Question 5 requests the FATCA classification of the filer. The classification indicated determines which one of the Parts IX through XXVII must be completed.

Part II of this form is to be completed if the entity is a disregarded entity or a branch receiving payment as an intermediary. Part II only applies to branches of an FFI outside the FFI’s country of residence.

Chapter 3 Status Certifications Parts III – VIII

Parts III – VIII of this form address the QI Status of the entity. Part III is to be completed if the entity is a QI, and requires the entity to certify that it is a QI and has provided appropriate documentation. Part IV is to be completed if the entity is a Nonqualified Intermediary (NQI), and requires the entity to certify that it is a NQI not acting for its own account.

Part V is to be completed if the entity is a Territory Financial Institution. Part VI is to be completed by a U.S. branch only if the branch certifies on the form that it is the U.S. branch of a U.S. bank or insurance company, and that the payments made are not effectively connected to a U.S. trade or business. Part VII is to be completed if the entity is a Foreign Withholding Partnership (WP) or a Withholding Foreign Trust (WT). Part VIII is to be completed if the entity is either a Nonwithholding Foreign Partnership, Simple Trust, or Grantor Trust.

Chapter 4 Status Certifications Parts IX – XXVI

Parts IX – XXVI of this form address the FATCA Status of the entity. These classifications include the new classification of a Restricted Distributor (Part XVI), but do not include the new classification of a Reporting NFFE.

Statement of Certification

Structure of New Form Form W-8IMY

Part I Identification of Entity
Part II Disregarded Entity or Branch Receiving Payment.

Chapter 3 Status Certifications

Part III Qualified Intermediary
Part IV Nonqualified Intermediary
Part V Territory Financial Institution
Part VI Certain U.S. Branches
Part VII Withholding Foreign Partnership (WP) or Withholding Foreign Trust (WT)
Part VIII Nonwithholding Foreign Partnership, Simple Trust, or Grantor Trust

Chapter 4 Status Certifications

Part IX Nonparticipating FFI with Exempt Beneficial Owners
Part X Sponsored FFI That Has Not Obtained a GIIN
Part XI Owner-Documented FFI
Part XII Certified Deemed-Compliant Nonregistering Local Bank
Part XIII Certified Deemed-Compliant FFI with Only Low-Value Accounts
Part XIV Certified Deemed-Compliant Sponsored, Closely Held Investment Vehicle
Part XV Certified Deemed-Compliant Limited Life Debt Investment Entity
Part XVI Restricted Distributor
Part XVII Foreign Central Bank of Issue
Part XVIII Nonreporting IGA FFI
Part XIX Exempt Retirement Plans
Part XX Excepted Nonfinancial Group Entity
Part XXI Excepted Nonfinancial Start-Up Company
Part XXII Excepted Nonfinancial Entity in Liquidation or Bankruptcy
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 Sponsored Direct Reporting NFFE

Practical Compliance Aspects of FATCA and GATCA

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Posted in FATCA | Tagged: FATCA, FFI, W-8IMY, withholding | Leave a Comment »

6 Tax Facts About the Additional Medicare Tax

Posted by William Byrnes on June 19, 2014

In Tax Tip 54, the IRS alerted taxpayers that if their income exceeds certain limits, then they may be liable for an Additional Medicare Tax. 6 Tax Tips Regarding the Additional Medicare Tax are:

1. The Additional Medicare Tax is 0.9%. It applies to the amount of a taxpayer’s wages, self-employment income and railroad retirement (RRTA) compensation that is more than a “threshold” amount. The threshold amount that applies is based on your filing status. If a taxpayer is married and file a joint return, then the taxpayer must combine both spouse’s wages, compensation, or self-employment income to determine if that income exceeds the “married filing jointly” threshold.

2. The threshold amounts are:

Filing Status                   Threshold Amount
Married filing jointly $250,000
Married filing separately   $125,000
Single                         $200,000
Head of household $200,000
Qualifying widow(er) with dependent child      $200,000

3. A taxpayer must combine all wages and all self-employment income to determine if the total income exceeds the threshold. A taxpayer may not consider a loss from self-employment when calculating this additional medicare tax. The taxpayer must compare RRTA compensation separately to the threshold. See the instructions for Form 8959, Additional Medicare Tax, for examples.

4. Employers must withhold this tax from wages or compensation when paying a taxpayer more than $200,000 in a calendar year, without regard to filing status. The employer does not combine the wages for married couples to determine whether to withhold Additional Medicare Tax.

5. A taxpayer may owe more tax than the amount withheld, depending on the filing status and other income. In that case, the taxpayer must make estimated tax payments /or request additional income tax withholding using Form W-4, Employee’s Withholding Allowance Certificate. If a taxpayer has too little tax withheld, or did not pay enough estimated tax, the taxpayer may owe an estimated tax penalty. For more on this topic, see Publication 505, Tax Withholding and Estimated Tax.

6. File Form 8959 with the tax return if owing Additional Medicare Tax. The taxpayer must also report any Additional Medicare Tax withheld by an employer on Form 8959.

IRS Examples:

How do individuals calculate Additional Medicare Tax if they have wages subject to Federal Insurance Contributions Act (FICA) tax and self-employment income subject to Self-Employment Contributions Act (SECA) tax?

Individuals with wages subject to FICA tax and self-employment income subject to SECA tax calculate their liabilities for Additional Medicare Tax in three steps:

Step 1. Calculate Additional Medicare Tax on any wages in excess of the applicable threshold for the filing status, without regard to whether any tax was withheld.

Step 2. Reduce the applicable threshold for the filing status by the total amount of Medicare wages received, but not below zero.

Step 3. Calculate Additional Medicare Tax on any self-employment income in excess of the reduced threshold.

Example 1. C, a single filer, has $130,000 in wages and $145,000 in self-employment income.

C’s wages are not in excess of the $200,000 threshold for single filers, so C is not liable for Additional Medicare Tax on these wages.
Before calculating the Additional Medicare Tax on self-employment income, the $200,000 threshold for single filers is reduced by C’s $130,000 in wages, resulting in a reduced self-employment income threshold of $70,000.
C is liable to pay Additional Medicare Tax on $75,000 of self-employment income ($145,000 in self-employment income minus the reduced threshold of $70,000).

Example 2. D and E are married and file jointly. D has $150,000 in wages and E has $175,000 in self-employment income.

D’s wages are not in excess of the $250,000 threshold for joint filers, so D and E are not liable for Additional Medicare Tax on D’s wages.
Before calculating the Additional Medicare Tax on E’s self-employment income, the $250,000 threshold for joint filers is reduced by D’s $150,000 in wages resulting in a reduced self-employment income threshold of $100,000.
D and E are liable to pay Additional Medicare Tax on $75,000 of self-employment income ($175,000 in self-employment income minus the reduced threshold of $100,000).

Posted in Taxation | Tagged: ACA Tax, Additional Medicare Tax, medicare tax, Obama Care tax | 1 Comment »

new Offshore Voluntary Disclosure Program (OVDP) announced with carrot of reduced penalties or stick of 50% penalty

Posted by William Byrnes on June 18, 2014

As an update to my article – https://profwilliambyrnes.com/2014/06/11/why-is-the-irs-softening-the-offshore-voluntary-compliance-program/ – the IRS today formally announced the new, softer approach.

IRS Commissioner John Koskinen disclosed that the 2009, 2011, and ongoing 2012 OVDPs have generated more than 45,000 disclosures and the collection of about $6.5 billion in taxes, interest and penalties. The substantial majority of this collection is FBAR penalty (see my previous articles on the OVDP and FBAR within this blog),

Commissioner Koskinen stated that in 2012 the IRS added the streamlined filing compliance procedures for a limited group of U.S. taxpayers living abroad who were not aware that they were out of compliance. The streamlined process allows this group to catch up on their U.S. filing requirements without paying steep penalties.

He then announced two sets of actions:

“First, we’re expanding the streamlined procedures to cover a much broader group of U.S. taxpayers we believe are out there who have failed to disclose their foreign accounts but who aren’t willfully evading their tax obligations. To encourage these taxpayers to come forward, we’re expanding the eligibility criteria, eliminating a cap on the amount of tax owed to qualify for the program, and doing away with a questionnaire that applicants were required to complete.”

“Second, we will be reshaping the terms for taxpayers to participate in the OVDP. This is designed to cover those whose failure to comply with reporting requirements is considered willful in nature, and who therefore don’t qualify for the streamlined procedures. These changes will help focus this program on people seeking certainty and relief from criminal prosecution. From now on, people who want to participate in this program will have to provide more information than in the past, submit all account statements at the time they apply for the program, and in some cases pay more in penalties than they would have done had they entered this program earlier.”

Thus, in the first case, the IRS is removing the $1,500 cap for tax owed to be able to enter the non willful OVDP, and eliminating the submission of the extensive questionnaire.

But in the second case, the penalty will be increased from 27.5% to 50% if the bank that holds (held) the taxpayer’s account has come under investigation by the IRS before the taxpayer receives the IRS OVDP clearance letter. The questionnaire will be expanded.

The formal new Streamlined Procedures program has been published as a set of FAQs with relevant links. The 2012 program is as per the below. An analysis of the new 2014 program will be published on this blog June 26, 2014.

50% Penalty

Beginning on August 4, 2014 (see Q&A 7.2), any taxpayer who has an undisclosed foreign financial account will be subject to a 50% miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation, an event has already occurred that constitutes a public disclosure that either

(a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person;

(b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or

(c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator.

Examples of a public disclosure include, without limitation: a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator. A list of foreign financial institutions or facilitators meeting this criteria is available.

Description of the Streamlined Procedure

This streamlined procedure is designed for taxpayers that present a low compliance risk. All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Taxpayers utilizing this procedure will be required to file delinquent tax returns, with appropriate related information returns (e.g. Form 3520 or 5471), for the past three years and to file delinquent FBARs for the past six years. Payment for the tax and interest, if applicable, must be remitted along with delinquent tax returns. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13. (December 2011).

In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by relevant treaty is available through this process. The proper deferral elections with respect to such arrangements must be made with the submission. See instructions below.

Eligibility

This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period. These taxpayers must present a low level of compliance risk as described below

Amended returns submitted through this program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. It should be noted that this relief is also available under the Offshore Voluntary Disclosure Program. See below for the information required to be submitted with such requests. (If you need to file an amended return to correct previously reported or unreported income, deductions, credits, tax etc, you should not use this streamlined procedure. Depending on your circumstances, you may want to consider participating in the Offshore Voluntary Disclosure Program.)

All tax returns submitted under this procedure must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, a TIN is a Social Security Number (SSN). For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed. For those who are ineligible for an SSN, but who do not have an ITIN, a submission may be made through this program if accompanied by a complete ITIN application. For information on obtaining an SSN, see http://www.ssa.gov. For information on obtaining an ITIN, see the ITIN page.

Compliance Risk Determination

The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.

The risk level may rise if any of the following are present:

If any of the returns submitted through this program claim a refund;
If there is material economic activity in the United States;
If the taxpayer has not declared all of his/her income in his/her country of residence;
If the taxpayer is under audit or investigation by the IRS;
If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
If there is U.S. source income; or
If there are indications of sophisticated tax planning or avoidance.

For additional information about what information will be requested to evaluate risk, please see the Questionnaire.

Instructions for Using This Procedure

Taxpayers wishing to use these streamlined procedures must:

1. Submit complete and accurate delinquent tax returns, with appropriate related information returns, for the last three years for which a U.S. tax return is due.

Please note that all delinquent information returns being filed under this procedure should be sent to the address below with the rest of the submission.

2. Include at the top of the first page of each tax return “Streamlined” to indicate that the returns are being submitted under this procedure. This is very important to ensure that your returns get processed through these procedures.

3. Submit payment of all tax due and owing as reflected on the returns and statutory interest due and owing.

For returns determined to be high risk, failure to file and failure to pay penalties may be imposed in accordance with U.S. federal tax laws and FBAR penalties may be imposed in accordance with U.S. law. Reasonable cause statements may be requested during review or examination of the returns determined to be high risk. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13(December 2011).

4. Submit copies of filed FBARs for the last six years for which an FBAR is due. (You should file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Through June 30, 2013, you may file electronically (http://bsaefiling.fincen.treas.gov) or by sending paper forms to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621. After June 30, 2013, you must file electronically (http://bsaefiling.fincen.treas.gov.)) If you are unable to file electronically, you may contact FinCEN’s Regulatory Helpline at 1-800-949-2732 or (if calling from outside the United States) 1-703-905-3975 to determine possible alternatives for timely reporting.

NOTE: Taxpayers filing FBARs electronically do not currently have the technological ability to include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Until such time that they have the ability, it is not necessary to include the statement. (July 18, 2013)

5. Submit a complete, accurate and signed Questionnaire.

6. If the taxpayer must apply for an ITIN in order to file delinquent returns under this procedure, the application and other documents required for applying for an ITIN must be attached to the the required forms, information and documentation required under this streamlined procedure. See the ITIN page for more.

7. Any taxpayer seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be required to submit:

a statement requesting an extension of time to make an election to defer income tax and identifying the pertinent treaty provision;
for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission; and
a dated statement signed by the taxpayer under penalties of perjury describing:
- the events that led to the failure to make the election,
- the events that led to the discovery of the failure, and
- if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities.

8. This program has been established for non-resident non-filers. Generally, amended returns will not be accepted in this program. The only amended returns accepted through this program are those being filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. Non-resident taxpayers who have previously filed returns but wish to request deferral provisions will be required to submit:

an amended return reflecting no adjustments to income deductions, or credits; and
all documents required in item 7 above.

9. The documents listed above must be sent to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined
Austin, TX 78741

Other Considerations

Taxpayers who are concerned about the risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution because of their particular circumstances should be aware of and consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on Jan. 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant. For additional information go to the OVDP page. It should be noted, however, that once a taxpayer makes a submission under the new procedure described in this document, OVDP is no longer available. It should also be noted that taxpayers who are ineligible to use OVDP are also ineligible to participate in this procedure.

Posted in Compliance, FATCA | Tagged: FBAR, offshore voluntary compliance program, OVDP | 2 Comments »

William Byrnes presents at LATAM International Tax Congress | Thomas Jefferson School of Law

Posted by William Byrnes on June 18, 2014

William Byrnes presents at LATAM International Tax Congress | Thomas Jefferson School of Law.

Posted in Courses | Leave a Comment »

8 Tax Facts about Penalties for Late Filing and Paying Taxes

Posted by William Byrnes on June 18, 2014

In Tax Tip 2014-56, the IRS provided 9 tax facts that a taxpayer needs to know about late filing and late paying tax penalties after the deadline of April 15. By example, taxpayers should be made aware that the failure-to-file penalty is usually 10 times greater than the failure-to-pay penalty. So the IRS encourages taxpayers to file on time, even if they cannot pay on time.

1. If a taxpayer is due a federal tax refund then there is no penalty if the tax return is filed later than April 15. However, if a taxpayer owes taxes and fails to file the tax return by April 15 or fails to pay any tax due by April 15, then the taxpayer will probably owe interest and penalties on the tax still after April 15.

2. Two federal penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

3. The failure-to-file penalty is usually much more than the failure-to-pay penalty. In most cases, it is 10 times more!!! So if a taxpayer cannot pay what is owe by April 15, the taxpayer should still file a tax return on time and pay as much as possible to reduce the balance.

4. The failure-to-file penalty is normally 5% of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25% of the unpaid taxes.

5. If a taxpayer files a return more than 60 days after the due date (or extended due date), the minimum penalty for late filing is the smaller of $135 or 100% of the unpaid tax.

6. The failure-to-pay penalty is generally 0.5% per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25% of the unpaid taxes.

7. If the 5% failure-to-file penalty and the 0.5% failure-to-pay penalty both apply in any month, the maximum penalty amount charged for that month is 5%.

8. If a taxpayer requested the 6-month extension of time to file the income tax return (until October 15) by the tax due date of April 15 and paid at least 90% of the taxes that are owed, then the taxpayer may not face a failure-to-pay penalty. However, the taxpayer must pay the remaining balance by the extended due date. The taxpayer will still owe interest on any taxes paid after the April 15 due date.

9. A taxpayer may avoid a failure-to-file or failure-to-pay penalty if able to show reasonable cause for not filing or paying on time.

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.

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”

Posted in Taxation | Tagged: 1040, failure-to-file penalty, failure-to-pay penalty, IRS, late penalty, tax, tax filing | Leave a Comment »

How Many Countries and Jurisdictions May Have “Foreign” Financial Institutions That May Need to Register for FATCA?

Posted by William Byrnes on June 17, 2014

As mentioned in the June 8th article, the USA recognizes 196 independent states in the world (the IRS recognizes the State of Palestine according to the FATCA GIIN list, otherwise the State Department only recognizes 195), 67 dependencies of states, and has contacts with Taiwan. But 14 of the dependencies are administered by the United States. So with Taiwan and Palestine counted, but exempting the US dependent Islands, 54 jurisdictions have financial institutions that are subject to FATCA registration. Thus, the total is 250.

I list below all the countries and jurisdictions recognized by the US State Department (but for Palestine which is not on the US State Department list).

STATES

Short-form name	Long-form name
Afghanistan *+	Islamic Republic of Afghanistan
Albania *+	Republic of Albania
Algeria *+	People’s Democratic Republic of Algeria
Andorra *+	Principality of Andorra
Angola *+	Republic of Angola
Antigua and Barbuda *+	Antiqua and Barbuda
Argentina *+	Argentine Republic
Armenia *+	Republic of Armenia
Australia *+	Commonwealth of Australia
Austria *+	Republic of Austria
Azerbaijan *+	Republic of Azerbaijan
Bahamas, The *+	Commonwealth of The Bahamas
Bahrain *+	Kingdom of Bahrain
Bangladesh *+	People’s Republic of Bangladesh
Barbados *+	Barbados
Belarus *+	Republic of Belarus
Belgium *+	Kingdom of Belgium
Belize *+	Belize
Benin *+	Republic of Benin
Bhutan +	Kingdom of Bhutan
Bolivia *+	Plurinational State of Bolivia
Bosnia and Herzegovina *+	Bosnia and Herzegovina
Botswana *+	Republic of Botswana
Brazil *+	Federative Republic of Brazil
Brunei *+	Brunei Darussalam
Bulgaria *+	Republic of Bulgaria
Burkina Faso *+	Burkina Faso
Burma *+	Union of Burma
Burundi *+	Republic of Burundi
! Cabo Verde *+	! Republic of Cabo Verde
Cambodia *+	Kingdom of Cambodia
Cameroon *+	Republic of Cameroon
Canada *+	Canada
Central African Republic *+	Central African Republic
Chad *+	Republic of Chad
Chile *+	Republic of Chile
China + (see note 3)*	People’s Republic of China
Colombia *+	Republic of Colombia
Comoros *+	Union of the Comoros
Congo (Brazzaville) + (see note 4)*	Republic of the Congo
Congo (Kinshasa) + (see note 4)*	Democratic Republic of the Congo
Costa Rica *+	Republic of Costa Rica
Côte d’Ivoire *+	Republic of Côte d’Ivoire
Croatia *+	Republic of Croatia
Cuba +	Republic of Cuba
Cyprus *+	Republic of Cyprus
Czech Republic *+	Czech Republic
Denmark *+	Kingdom of Denmark
Djibouti *+	Republic of Djibouti
Dominica *+	Commonwealth of Dominica
Dominican Republic *+	Dominican Republic
Ecuador *+	Republic of Ecuador
Egypt *+	Arab Republic of Egypt
El Salvador *+	Republic of El Salvador
Equatorial Guinea *+	Republic of Equatorial Guinea
Eritrea *+	State of Eritrea
Estonia *+	Republic of Estonia
Ethiopia *+	Federal Democratic Republic of Ethiopia
Fiji *+	Republic of Fiji
Finland *+	Republic of Finland
France *+	French Republic
Gabon *+	Gabonese Republic
Gambia, The *+	Republic of The Gambia
Georgia *+	Georgia
Germany *+	Federal Republic of Germany
Ghana *+	Republic of Ghana
Greece *+	Hellenic Republic
Grenada *+	Grenada
Guatemala *+	Republic of Guatemala
Guinea *+	Republic of Guinea
Guinea-Bissau *+	Republic of Guinea-Bissau
Guyana *+	Co-operative Republic of Guyana
Haiti *+	Republic of Haiti
Holy See *	Holy See
Honduras *+	Republic of Honduras
Hungary *+	Hungary
Iceland *+	Republic of Iceland
India *+	Republic of India
Indonesia *+	Republic of Indonesia
Iran +	Islamic Republic of Iran
Iraq *+	Republic of Iraq
Ireland *+	Ireland
Israel *+	State of Israel
Italy *+	Italian Republic
Jamaica *+	Jamaica
Japan *+	Japan
Jordan *+	Hashemite Kingdom of Jordan
Kazakhstan *+	Republic of Kazakhstan
Kenya *+	Republic of Kenya
Kiribati *+	Republic of Kiribati
Korea, North +	Democratic People’s Republic of Korea
Korea, South *+	Republic of Korea
Kosovo *	Republic of Kosovo
Kuwait *+	State of Kuwait
Kyrgyzstan *+	Kyrgyz Republic
Laos *+	Lao People’s Democratic Republic
Latvia *+	Republic of Latvia
Lebanon *+	Lebanese Republic
Lesotho *+	Kingdom of Lesotho
Liberia *+	Republic of Liberia
Libya *+	Libya
Liechtenstein *+	Principality of Liechtenstein
Lithuania *+	Republic of Lithuania
Luxembourg *+	Grand Duchy of Luxembourg
Macedonia *+	Republic of Macedonia
Madagascar *+	Republic of Madagascar
Malawi *+	Republic of Malawi
Malaysia *+	Malaysia
Maldives *+	Republic of Maldives
Mali *+	Republic of Mali
Malta *+	Republic of Malta
Marshall Islands *+	Republic of the Marshall Islands
Mauritania *+	Islamic Republic of Mauritania
Mauritius *+	Republic of Mauritius
Mexico *+	United Mexican States
Micronesia, Federated States of *+	Federated States of Micronesia
Moldova *+	Republic of Moldova
Monaco *+	Principality of Monaco
Mongolia *+	Mongolia
Montenegro *+	Montenegro
Morocco *+	Kingdom of Morocco
Mozambique *+	Republic of Mozambique
Namibia *+	Republic of Namibia
Nauru *+	Republic of Nauru
Nepal *+	Federal Democratic Republic of Nepal
Netherlands *+	Kingdom of the Netherlands
New Zealand *+	New Zealand
Nicaragua *+	Republic of Nicaragua
Niger *+	Republic of Niger
Nigeria *+	Federal Republic of Nigeria
Norway *+	Kingdom of Norway
Oman *+	Sultanate of Oman
Pakistan *+	Islamic Republic of Pakistan
Palau *+	Republic of Palau
Panama *+	Republic of Panama
Papua New Guinea *+	Independent State of Papua New Guinea
Paraguay *+	Republic of Paraguay
Peru *+	Republic of Peru
Philippines *+	Republic of the Philippines
Poland *+	Republic of Poland
Portugal *+	Portuguese Republic
Qatar *+	State of Qatar
Romania *+	Romania
Russia *+	Russian Federation
Rwanda *+	Republic of Rwanda
Saint Kitts and Nevis *+	Federation of Saint Kitts and Nevis
Saint Lucia *+	Saint Lucia
Saint Vincent and the Grenadines *+	Saint Vincent and the Grenadines
Samoa *+	Independent State of Samoa
San Marino *+	Republic of San Marino
Sao Tome and Principe *+	Democratic Republic of Sao Tome and Principe
Saudi Arabia *+	Kingdom of Saudi Arabia
Senegal *+	Republic of Senegal
Serbia *+	Republic of Serbia
Seychelles *+	Republic of Seychelles
Sierra Leone *+	Republic of Sierra Leone
Singapore *+	Republic of Singapore
Slovakia *+	Slovak Republic
Slovenia *+	Republic of Slovenia
Solomon Islands *+	Solomon Islands
Somalia *+	! Federal Republic of Somalia
South Africa *+	Republic of South Africa
South Sudan *+	Republic of South Sudan
Spain *+	Kingdom of Spain
Sri Lanka *+	Democratic Socialist Republic of Sri Lanka
Sudan *+	Republic of the Sudan
Suriname *+	Republic of Suriname
Swaziland *+	Kingdom of Swaziland
Sweden *+	Kingdom of Sweden
Switzerland *+	Swiss Confederation
Syria *+	Syrian Arab Republic
Tajikistan *+	Republic of Tajikistan
Tanzania *+	United Republic of Tanzania
Thailand *+	Kingdom of Thailand
Timor-Leste *+	Democratic Republic of Timor-Leste
Togo *+	Togolese Republic
Tonga *+	Kingdom of Tonga
Trinidad and Tobago *+	Republic of Trinidad and Tobago
Tunisia *+	Tunisian Republic
Turkey *+	Republic of Turkey
Turkmenistan *+	Turkmenistan
Tuvalu *+	Tuvalu
Uganda *+	Republic of Uganda
Ukraine *+	Ukraine
United Arab Emirates *+	United Arab Emirates
United Kingdom *+	United Kingdom of Great Britain and Northern Ireland
United States +	United States of America
Uruguay *+	Oriental Republic of Uruguay
Uzbekistan *+	Republic of Uzbekistan
Vanuatu *+	Republic of Vanuatu
Venezuela *+	Bolivarian Republic of Venezuela
Vietnam *+	Socialist Republic of Vietnam
Yemen *+	Republic of Yemen
Zambia *+	Republic of Zambia
Zimbabwe *+	Republic of Zimbabwe

OTHER

Short-form name	Long-form name
Taiwan (see note 6)	(no long-form name)

Short-form name	Long-form name	Sovereignty	Administrative Center
Akrotiri (see note 15)	Akrotiri	United Kingdom	Episkopi (see note 16)
American Samoa	Territory of American Samoa	United States	Pago Pago
Anguilla	Anguilla	United Kingdom	The Valley
Antarctica	(no long-form name)	None (see note 2)	None
Aruba	(no long-form name)	Netherlands	Oranjestad
Ashmore and Cartier Islands	Territory of Ashmore and Cartier Islands	Australia	Administered from Canberra
Baker Island	(no long-form name)	United States	Administered from Washington, D.C.
Bermuda	Bermuda	United Kingdom	Hamilton
Bouvet Island	(no long-form name)	Norway	Admin. from Oslo
British Indian Ocean Territory (see note 3)	British Indian Ocean Territory	United Kingdom	None
Cayman Islands	Cayman Islands	United Kingdom	George Town
Christmas Island	Territory of Christmas Island	Australia	The Settlement (Flying Fish Cove)
Clipperton Island	(no long-form name)	France	Administered from Paris
Cocos (Keeling) Islands	Territory of Cocos (Keeling) Islands	Australia	West Island
Cook Islands	(no long-form name)	New Zealand	Avarua
Coral Sea Islands	Coral Sea Islands Territory	Australia	Administered from Canberra
Curaçao (see note 11)	(no long-form name)	Netherlands	Willemstad
Dhekelia (see note 15)	Dhekelia	United Kingdom	Episkopi (see note 16)
Falkland Islands (Islas Malvinas)	Falkland Islands (Islas Malvinas)	United Kingdom (see note 4)	Stanley
Faroe Islands	(no long-form name)	Denmark	Tórshavn
French Guiana (see note 5)
French Polynesia	(no long-form name)	France	Papeete
French Southern and Antarctic Lands (see note 6)	(no long-form name)	France	Administered from Paris
Gibraltar	Gibraltar	United Kingdom	Gibraltar
Greenland	(no long-form name)	Denmark	Nuuk (Godthåb)
Guadeloupe (see note 5)
Guam	Territory of Guam	United States	Hagatna
Guernsey (see note 7)	Bailiwick of Guernsey	British Crown Dependency	Saint Peter Port
Heard Island and McDonald Islands	Territory of Heard Island and McDonald Islands	Australia	Administered from Canberra
Hong Kong	Hong Kong Special Administrative Region	China (see note 8)	None
Howland Island	(no long-form name)	United States	Administered from Washington, D.C.
Isle of Man	(no long-form name)	British Crown Dependency	Douglas
Jan Mayen	(no long-form name)	Norway	Administered from Oslo (see note 9)
Jarvis Island	(no long-form name)	United States	Administered from Washington, D.C.
Jersey	Bailiwick of Jersey	British Crown Dependency	Saint Helier
Johnston Atoll	(no long-form name)	United States	Administered from Washington, D.C.
Kingman Reef	(no long-form name)	United States	Administered from Washington, D.C.
Macau	Macau Special Administrative Region	China (see note 10)	Macau
Martinique (see note 5)
! Mayotte (see note 5)
Midway Islands	(no long-form name)	United States	Administered from Washington, D.C.
Montserrat	Montserrat	United Kingdom	Plymouth
Navassa Island	(no long-form name)	United States	Administered from Washington, D.C.
New Caledonia	(no long-form name)	France	Nouméa
Niue	(no long-form name)	New Zealand	Alofi
Norfolk Island	Territory of Norfolk Island	Australia	Kingston
Northern Mariana Islands	Commonwealth of the Northern Mariana Islands	United States	Saipan
Palmyra Atoll	(no long-form name)	United States	Administered from Washington, D.C.
Paracel Islands	(no long-form name)	undetermined(see note 12)	None
Pitcairn Islands	Pitcairn, Henderson, Ducie, and Oeno Islands	United Kingdom	Adamstown
Puerto Rico	Commonwealth of Puerto Rico	United States	San Juan
Reunion (see note 5)
Saint Barthelemy	Saint Barthelemy	France	Gustavia
Saint Helena (see note 13)	Saint Helena, Ascension, and Tristan da Cunha	United Kingdom	Jamestown
Saint Martin (see note 17)	Saint Martin	France	Marigot
Saint Pierre and Miquelon	Territorial Collectivity of Saint Pierre and Miquelon	France	Saint-Pierre
Sint Maarten (see note 11)	(no long-form name)	Netherlands	Philipsburg
South Georgia and the South Sandwich Islands	South Georgia and the South Sandwich Islands	United Kingdom (see note 4)	None
Spratly Islands	(no long-form name)	undetermined(see note 14)	None
Svalbard	(no long-form name)	Norway	Longyearbyen
Tokelau	(no long-form name)	New Zealand	None
Turks and Caicos Islands	Turks and Caicos Islands	United Kingdom	Grand Turk
Virgin Islands, British	Virgin Islands, British	United Kingdom	Road Town
Virgin Islands, U.S.	United States Virgin Islands	United States	Charlotte Amalie
Wake Island	(no long-form name)	United States	Administered from Washington, D.C.
Wallis and Futuna	(no long-form name)	France	Matâ’utu
Western Sahara	(no long-form name)	To be determined	None

Practical Compliance Aspects of FATCA and GATCA

Posted in FATCA | Tagged: FATCA, IGA | 4 Comments »

Updated FATCA GIIN List of FFI Registrations by Country and IGA

Posted by William Byrnes on June 16, 2014

Below is a selection of the 77,353 registered from 115 of the total 205 countries and jurisdictions on the June 2nd list. Of the total registered as of June, 70,811 FFIs (91.5%) registered from the 78 countries and jurisdictions that as of June 15th have an IGA. Thus, these 70,811 probably registered either as Deemed Compliant FFIs or as branches by the initial May 5^th extended deadline.

Only 6,542 FFIs registered from the remaining 172 countries and jurisdictions either as Participating FFIs or branches. Withholding agents are finalizing systems to begin 30% withholding on the Non-Participating FFIs within these 172 non-IGA countries. Withholding on IGA jurisdiction non-compliant FFIs only begins January 1st.

Afghanistan: 7
Andorra: 33
Anguilla: 70
Antigua & Barbuda: 35
Argentina: 269
Armenia: 27 <– IGA
Aruba: 13
Australia: 1,864 <– IGA
Austria: 2,978
Azerbaijan: 16 <– IGA
Bahamas: 610 <– IGA
Barbados: 123 <– IGA
Belgium: 249 <– IGA
Belarus: 64
Belize: 122
Bermuda: 1,242
Brazil: 2,258 <– IGA
Bulgaria: 72
BVI: 1,837 <– IGA
Canada: 2,264 <– IGA
Cayman Islands: 14,836 <– IGA
China: 211
Christmas Island: 1
Colombia: 172 <– IGA
Comoros Is.: 1
Costa Rica: 122 <– IGA
Cook Is.: 72
Croatia: 50 <– IGA
Curacao: 173 <– IGA
Cyprus: 279 <– IGA
Czech Republic: 92 <– IGA
Denmark: 186 <– IGA
Djibouti: 1
Dominica: 17
Dominican Republic: 67
Ecuador: 22
Egypt: 62
Equatorial Guinea: 1
Estonia: 26 <– IGA
Falkland Islands: 1
Finland: 466 <– IGA
France: 2,290 <– IGA
French Southern Territories: 1
Georgia: 24 <– IGA
Germany: 2,554 <– IGA
Gibraltar: 96 <– IGA
Greece: 91
Greenland: 1
Grenada: 31
Guadeloupe: 1
Guam: 3
Guatemala: 75
Guernsey: 2,395 <– IGA
Honduras: 47 <– IGA
Hong Kong: 1,539 <– IGA
Hungary: 101 <– IGA
Iceland: 5
India: 246 <– IGA
Indonesia: 307 <– IGA
Ireland: 1,756 <– IGA
Isle of Man: 312 <– IGA
Israel: 321 <– IGA
Italy: 456 <– IGA
Jamaica: 41 <– IGA
Japan: 3,251 <– IGA
Jersey: 1,618 <– IGA
North Korea: 4
South Korea: 396
Kuwait: 77
Latvia: 40
Lichtenstein: 239 <– IGA
Lithuania: 21 ß IGA
Luxembourg: 3,560 ß IGA
Macao: 36
Malta: 235 <– IGA
Mauritius: 727 <– IGA
Mexico: 418 <– IGA
Monaco: 98
Netherlands: 2,053 <– IGA
New Zealand: 334 <– IGA
Norway: 312 <– IGA
Other: 22
Panama: 450 <– IGA
Paraguay: 17 <– IGA
Peru: 164 <– IGA
Poland: 164 <– IGA
Portugal: 255 <– IGA
Qatar: 46 <– IGA
Romania: 109 <– IGA
Russia: 514
Saint Pierre & Miquelon: 1
San Marino: 14
Saudi Arabia: 17
Seychelles: 37 <– IGA
Singapore: 783 <– IGA
South Africa: 317 <– IGA
Spain: 1,187 <– IGA
Slovakia: 54 <– IGA
Slovenia: 20 <– IGA
St Kitts & Nevis: 70 <– IGA
St Lucia: 60 <– IGA
St. Vincent and the Grenadines: 104 <– IGA
Sweden: 312 <– IGA
Switzerland: 4,040 <– IGA
Taiwan: 408
Turkey: 65 <– IGA
Turkmenistan: 1 <-– IGA
Turks & Caicos: 27 <– IGA
Ukraine: 105
United Arab Emirates: 135 <– IGA
United Kingdom: 6,263 <– IGA
USA: 562
Uruguay: 131
Venezuela: 29
Wallis & Fortuna: 1

FFI Registration Among Model 1 IGAs and the Rest

BRIC Registration

Brazil leads the BRIC countries with 2,258 FFI registered, followed by Russia (514), India (246) with China only having 211.

NAFTA Registrations

2,264 FFIs registered from Canada and Mexico at 418.

Major OECD Countries Registrations

The United Kingdom (6,263) 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 5^th and 2^nd). 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 (1,864), France (2,290), Germany (2,254), Ireland (1,756) and Netherlands (2,053).

European Financial Centers Registrations

Switzerland (4,040), Luxembourg (3,560), Austria (2,978), Lichtenstein (239). Guernsey (2,395), Jersey (1,618), Isle of Man (312) and Gibraltar (96).

Caribbean Financial Centers Registrations

BVI (1,837), Bahamas (610), Bermuda (1,242) and Panama (450).

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

“Other” Registrations

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

Edelweiss has posted his research on the UK’s 6.263 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 6,263 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. I presume they have an affiliation with a US private equity shareholder. Globally, there are 26 mentions of “Bidco”, 157 of “Holdco”, 37 “Midco”, 44 “Topco”, 144 “Acquisition”, 156 “Mezzanine” (not exclusively private equity, also specialty finance like mezz funds).
I found 321 instances of “LLP” and “265″ instances of partnership
I found 16 “deceased” and 33 “will trust”

Three Questions raised by Edelweiss

For some reason, the large UK retailers Marks and Spencer (a plc) and John Lewis (a co-operative) found it necessary to register. M&S offers a savings account (which presumably explains why) but John Lewis doesn’t. Could it be credit card related?

Response: A FFI is eligible to be classified as a “registered deemed-compliant” FFI (“RDCFFI”) if it completes a registration process with the IRS (See Lexis Guide to FATCA Compliance § 7.04) and either is a Reporting Model 1 FFI, or falls within one of six categories listed in Treasury Regulations Section 1.1471-5(f)(1)(i). These six categories include:

local FFIs;
nonreporting members of participating FFI groups;
qualified collective investment vehicles;
restricted funds;
qualified credit card issuers; or
sponsored investment entities and controlled foreign corporations.

Qualified Credit Card Issuers

A “qualified credit card issuer” is an entity that is an FFI solely because it is an issuer of credit cards that accepts deposits only when a customer makes a payment in excess of a balance due on the card and the overpayment is not immediately returned to the customer. …

Also present is Alliance-Boots, the UK’s largest pharmacy. They have 16 entities in the UK and Ireland (under AB Acquisition and Alliance Boots) though I assume this is because they are part owned by KKR.
I would be curious to get your take on why Nestle Suisse SA found it necessary to register as an FFI. Is this to avoid confiscation of 30% of principal and interest on the repayment of intercompany loans from a US subsidiary? Is it because it’s a finance subsidiary and they have US source income from bonds?

Practical Compliance Guide for FATCA

Posted in FATCA, Uncategorized | Tagged: FATCA, FFI, GIIN, IGA | 1 Comment »

Changes Within Updated Model IGAs

Posted by William Byrnes on June 16, 2014

I ran a document compare for the June 6 released Reciprocal Model 1, Model 2 with TIEA / DTC and the Annex 1 to Model 1. The updates to the June 6, 2014 versions are minor.

The material addition is the new Section VI(G), VI(H). The most significant deletion is the elimination of the reference to the development by the OECD of a Common Reporting Standard (“CRS”) (which has now occurred).

G. Alternative Procedures for New Accounts Opened Prior to Entry Into Force of this Agreement.

1. Applicability. If [FATCA Partner] has provided a written notice to the United States prior to entry into force of this Agreement that, as of July 1, 2014, [FATCA Partner] lacked the legal authority to require Reporting [FATCA Partner] Financial Institutions either: (i) to require Account Holders of New Individual Accounts to provide the self-certification specified in section III of this Annex I, or (ii) to perform all the due diligence procedures related to New Entity Accounts specified in section V of this Annex I, then Reporting [FATCA Partner] Financial Institutions may apply the alternative procedures described in subparagraph G(2) of this section, as applicable, to such New Accounts, in lieu of the procedures otherwise required under this Annex I. The alternative procedures described in subparagraph G(2) of this section shall be available only for those New Individual Accounts or New Entity Accounts, as applicable, opened prior to the earlier of: (i) the date [FATCA Partner] has the ability to compel Reporting [FATCA Partner] Financial Institutions to comply with the due diligence procedures described in section III or section V of this Annex I, as applicable, which date [FATCA Partner] shall inform the United States of in writing by the date of entry into force of this Agreement, or (ii) the date of entry into force of this Agreement. If the alternative procedures for New Entity Accounts opened on or after July 1, 2014, and before January 1, 2015, described in paragraph H of this section are applied with respect to all New Entity Accounts or a clearly identified group of such accounts, the alternative procedures described in this paragraph G may not be applied with respect to such New Entity Accounts. For all other New Accounts, Reporting [FATCA Partner] Financial Institutions must apply the due diligence procedures described in section III or section V of this Annex I, as applicable, to determine if the account is a U.S. Reportable Account or an account held by a Nonparticipating Financial Institution.

2. Alternative Procedures.

a) Within one year after the date of entry into force of this Agreement, Reporting [FATCA Partner] Financial Institutions must: (i) with respect to a New Individual Account described in subparagraph G(1) of this section, request the self-certification specified in section III of this Annex I and confirm the reasonableness of such self-certification consistent with the procedures described in section III of this Annex I, and (ii) with respect to a New Entity Account described in subparagraph G(1) of this section, perform the due diligence procedures specified in section V of this Annex I and request information as necessary to document the account, including any self-certification, required by section V of this Annex I.

b) [FATCA Partner] must report on any New Account that is identified pursuant to subparagraph G(2)(a) of this section as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable, by the date that is the later of: (i) September 30 next following the date that the account is identified as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable, or (ii) 90 days after the account is identified as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable. The information required to be reported with respect to such a New Account is any information that would have been reportable under this Agreement if the New Account had been identified as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable, as of the date the account was opened.

c) By the date that is one year after the date of entry into force of this Agreement, Reporting [FATCA Partner] Financial Institutions must close any New Account described in subparagraph G(1) of this section for which it was unable to collect the required self-certification or other documentation pursuant to the procedures described in subparagraph G(2)(a) of this section. In addition, by the date that is one year after the date of entry into force of this Agreement, Reporting [FATCA Partner] Financial Institutions must: (i) with respect to such closed accounts that prior to such closure were New Individual Accounts (without regard to whether such accounts were High Value Accounts), perform the due diligence procedures specified in paragraph D of section II of this Annex I, or (ii) with respect to such closed accounts that prior to such closure were New Entity Accounts, perform the due diligence procedures specified in section IV of this Annex I.

d) [FATCA Partner] must report on any closed account that is identified pursuant to subparagraph G(2)(c) of this section as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable, by the date that is the later of: (i) September 30 next following the date that the account is identified as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable, or (ii) 90 days after the account is identified as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable. The information required to be reported for such a closed account is any information that would have been reportable under this Agreement if the account had been identified as a U.S. Reportable Account or as an account held by a Nonparticipating Financial Institution, as applicable, as of the date the account was opened.

H. Alternative Procedures for New Entity Accounts Opened on or after July 1, 2014, and before January 1, 2015.

For New Entity Accounts opened on or after July 1, 2014, and before January 1, 2015, either with respect to all New Entity Accounts or, separately, with respect to any clearly identified group of such accounts, [FATCA Partner] may permit Reporting [FATCA Partner] Financial Institutions to treat such accounts as Preexisting Entity Accounts and apply the due diligence procedures related to Preexisting Entity Accounts specified in section IV of this Annex I in lieu of the due diligence procedures specified in section V of this Annex I. In this case, the due diligence procedures of section IV of this Annex I must be applied without regard to the account balance or value threshold specified in paragraph A of section IV of this Annex I.

Model Intergovernmental Agreements (Model Agreements)

Following the enactment of FATCA, Treasury published the Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA. Use the links here to find the current version of the agreement you need.

Reciprocal Model 1A Agreement, Preexisting TIEA or DTC (Updated 6-6-2014) <–Updated
Nonreciprocal Model 1B Agreement, Preexisting TIEA or DTC (Updated 6-6-2014) <–Updated
Nonreciprocal Model 1B Agreement, No TIEA or DTC (Updated 6-6-2014) <–Updated
Model 2 Agreement, Preexisting TIEA or DTC (Updated 6-6-2014) <–Updated
Model 2 Agreement, No TIEA or DTC (Updated 6-6-2014) <–Updated
Annex I to Model 1 Agreement (Updated 6-6-2014) <–Updated
Annex I to Model 2 Agreement (Updated 6-6-2014) <–Updated
Annex II to Model 1 Agreement (Updated 11-4-2013)
Annex II to Model 2 Agreement (Updated 11-4-2013)

Practical Compliance Aspects of FATCA and GATCA

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

8 IGAs announced since June 3rd leave only 172 countries’ FFIs to withhold upon July 1st

Posted by William Byrnes on June 13, 2014

As mentioned in the June 8th article about the passing of the July GIIN List inclusion deadline, the estimate of states and jurisdictions that probably could benefit from an IGA (Model 2 for jurisdictions without populations) is the full number of countries and non-US Dependencies recognized by the US, which is 250, to accommodate the territories like British Indian Ocean Territory and French Southern Territories from which FFIs registered (to my, and many others, surprise). Therefore, with 78 IGAs announced thus far, as of Friday June 13th, 172 countries and jurisdictions are without IGAs that could benefit from one – because withholding on their non-(FATCA) compliant financial institutions will begin July 1st.

The current 78 recognized IGAs as of June 12 include 31 signed Model 1s with another 39 treated as if signed, and 5 signed Model 2s with 3 treated as if signed.

Which firms are covered by the FATCA term “Financial Institutions”?

The definition of a financial institution in the final regulations includes any entity that is primarily engaged in the business of investing, reinvesting, or trading in securities, commodities, partnership interests, etc. For this purpose, an entity is primarily engaged in such activities if its gross income attributable to such activities equals or exceeds 50 percent during the relevant testing period.

Thus, foreign funds, collective investment vehicles, and passive investment corporations are considered financial institutions (FFIs) and not passive nonfinancial foreign entities (NFFEs), which is relevant in terms of compliance requirements. Fund managers, as well as the funds that they manage, are likely considered FFIs under this definition. However, passive investment corporations may not be captured by this definition because they do not generally engage in any of the activities for customers, nor are they generally managed by an entity that does.

Form 8957 FFI Registration

The instructions to Form 8957 indicate that the following FFIs and branches are eligible to register (on behalf of themselves and their branches) to obtain a GIIN (unless the entity is a Limited FFI or Limited Branch):

Entities not covered by an IGA that wish to enter into an FFI agreement and become a PFFI;
Reporting Model 1 FFIs (including branches of U.S. financial institutions that will be treated as such), registering as an RDCFFI;
Reporting Model 2 FFIs that agree to comply with the terms of an FFI agreement, as modified under the applicable IGA;
Limited FFIs or Limited Branches that confirm that they will comply with applicable terms;
Sponsoring FFIs that agree to perform due diligence, reporting, and withholding on behalf of one or more Sponsored FFIs;
QIs (or Withholding Partnerships and Withholding Trusts) wishing to renew their QI, WP, or WT Agreements; and
Lead FIs/Compliance FIs wishing to identify themselves as such for the purposes of registering members and affiliates.

Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W-8BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

What is a “Compliance FI”?

A Compliance FI means a PFFI, Reporting FI under a Model 1 or 2 IGA, or USFI that agrees to establish and maintain a consolidated compliance program and to perform a consolidated periodic review on behalf of one or more Member FIs that are part of its EAG (the compliance group). A Compliance FI must meet the requirements to register as a Lead FI, and as part of that registration, it must identify each Member FI that is included in its compliance group. A Compliance FI must also have the authority to terminate the FATCA status of each Member FI within its compliance group.

What is an Expanded Affiliated Group (EAG)?

An Expanded Affiliated Group of FFIs (EAG) means one or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if the common parent owns directly stock in at least one of the other includible corporations totaling more than 50 percent of the total voting power of the stock of such corporation, and with a value equal to more than 50 percent of the total value of the stock of such corporation, and if stock meeting these vote and value requirements in each of the includible corporations (except the common parent) is owned directly by one or more of the other includible corporations. A partnership or any entity other than a corporation shall be treated as a member of EAG if such entity is controlled by members of such EAG.

Must Each Member of an EAG separately Register?

In general, all FFIs, other than exempt beneficial owners or certified deemed-compliant FFIs, that are part of the same EAG must be registered. For purposes of registration, an EAG may have more than one Lead FI and may organize itself for purposes of registration into subgroups under different Lead FIs.

For example, an EAG of 10 FFIs may decide to select two different Lead FIs, Lead FI 1 and Lead FI 2. Lead FI 1 can carry out FATCA registration on behalf of four of its Member FIs and Lead FI 2 can carry out FACTA registration on behalf of four of its other Member FIs. All 10 FFIs within the same EAG will be registered, even though they are registered under two different Lead FIs.

If an EAG has in place a consolidated compliance program, then Member FIs that elect to participate in the same consolidated compliance program should be registered as Member FIs by the Lead FI that is acting as the Compliance FI for that compliance group.

What is a Sponsored FFI?

A sponsored FFI means an investment entity or an FFI that is a controlled foreign corporation (CFC) having a Sponsoring Entity that will perform the due diligence, withholding, and reporting obligations on its behalf. An FFI that is a Sponsored FFI will be registered by its Sponsoring Entity.

Must an Registered FFI that also acts as a Sponsoring Entity Register a Second Time?

Yes. An FFI that will also act as a Sponsoring Entity for one or more Sponsored Entities is required to submit a second 8957 registration form to act as a Sponsoring Entity. The Sponsoring Entity will receive a separate Sponsoring Entity GIIN and should only use that GIIN when it is fulfilling its obligations as a Sponsoring Entity.

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

Australia (4-28-2014): 1,864
Belgium (4-23-2014): 249
Canada (2-5-2014): 2,264
Cayman Islands (11-29-2013): 14,836
Costa Rica (11-26-2013): 122
Denmark (11-19-2012): 186
Estonia (4-11-2014): 26
Finland (3-5-2014): 466
France (11-14-2013): 2,290
Germany (5-31-2013): 2,554
Gibraltar (5-8-2014): 96
Guernsey (12-13-2013): 2,395
Hungary (2-4-2014): 101
Honduras (3-31-2014): 47
Ireland (1-23-2013): 1,756
Isle of Man (12-13-2013): 312
Italy (1-10-2014): 456
Jamaica (5-1-2014): 41
Jersey (12-13-2013): 1,618
Liechtenstein (5-19-2014): 239
Luxembourg (3-28-2014): 3,560
Malta (12-16-2013): 235
Mauritius (12-27-2013): 727
Mexico (4-9-2014): 418
Netherlands (12-18-2013): 2,053
New Zealand (6-12-2014) 334 < – moved from below list
Norway (4-15-2013): 312
Slovenia (6-2-2014): 20
South Africa (6-9-2014): 317 < – moved from below list
Spain (5-14-2013): 1,187
United Kingdom (9-12-2012): 6,263

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

Model 1 IGA – 39 (followed by number of registered FFIs)

Antigua and Barbuda (6-3-2014): 35 < – new entry
Azerbaijan (5-16-2014): 16
Bahamas (4-17-2014): 610
Barbados (5-27-2014): 123
Belarus (6-6-2014): 64 < – new entry
Brazil (4-2-2014): 2,258
British Virgin Islands (4-2-2014): 1,837
Bulgaria (4-23-2014): 72
Colombia (4-23-2014): 172
Croatia (4-2-2014): 50
Curaçao (4-30-2014): 173
Czech Republic (4-2-2014): 92
Cyprus (4-22-2014): 279
Georgia (6-12-201): 24 < – new entry
India (4-11-2014): 246
Indonesia (5-4-2014): 307
Israel (4-28-2014): 321
Kosovo (4-2-2014) – nil
Kuwait (5-1-2014): 77
Latvia (4-2-2014): 40
Lithuania (4-2-2014): 21
Panama (5-1-2014): 450
Peru (5-1-2014): 164
Poland (4-2-2014): 164
Portugal (4-2-2014): 255
Qatar (4-2-2014): 46
Romania (4-2-2014): 109
St. Kitts and Nevis (6-4-2014)
St. Lucia (6-12-2014): 60 < – new entry
St. Vincent and the Grenadines (6-2-2014): 104 < – new entry
Seychelles (5-28-2014): 37 < – new entry
Singapore (5-5-2014): 783
Slovak Republic (4-11-2014): 54
South Korea (4-2-2014): 396
Sweden (4-24-2014): 312
Turkey (6-3-2014): 65
Turkmenistan (6-3-2014): 1 < – new entry
Turks and Caicos Islands (5-12-2014): 27
United Arab Emirates (5-23-2014): 135

Model 2 IGA – 3

Armenia (5-8-2014): 27
Hong Kong (5-9-2014): 1.539
Paraguay (6-6-2014): 17 < – new entry

Practical Compliance Aspects of FATCA and GATCA

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

Webcast Today at 11AM Pacific: Building a Retirement Plan: Is the Roth IRA Still A Viable Vehicle – and if Not, What Is?

Posted by William Byrnes on June 12, 2014

Complimentary Webcast today!!!

Building a Retirement Plan: Is the Roth IRA Still A Viable Vehicle – and if Not, What Is?

Professor William H. Byrnes, Associate Dean, International Tax & Financial Services, Thomas Jefferson School of Law

Bruce Guillemette, Vice President, Advanced Markets Case Design, AXA Equitable Life Insurance Company

Bill Coffin, Group Editorial Director, National Underwriter Life & Health

http://www.lifehealthpro.com/webseminars/building-a-retirement-plan-is-the-roth-ira-still-a

Posted in Courses | Leave a Comment »

Why Is The IRS Softening the Offshore Voluntary Compliance Program ?

Posted by William Byrnes on June 11, 2014

On June 3, 2014 the IRS Commissioner John A. Koskinen stated before The U.S. Council For International Business-OECD International Tax Conference:

“Now while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.

We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. … We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. …”

Amount Recovered Thus Far from Non-Compliant Taxpayers

According to the GAO Reports and the Senate Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.

However, the vast majority of this recovered $6 billion is not tax revenue but instead results from the FBAR penalties (anti money laundering financial reporting form sent by June 30 to FINCEN, separate from the 1040 tax filing to the IRS sent by April 15) assessed for not reporting a foreign account. The Taxpayer Advocatefound 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.

From the IRS OVDP FAQ:

“For example, assume the taxpayer has the following amounts in a foreign account over the period covered by his voluntary disclosure. It is assumed for purposes of the example that the $1,000,000 was in the account before 2003 and was not unreported income in 2003.

Year	Amount on Deposit	Interest Income	Account Balance
2003	$1,000,000	$50,000	$1,050,000
2004		$50,000	$1,100,000
2005		$50,000	$1,150,000
2006		$50,000	$1,200,000
2007		$50,000	$1,250,000
2008		$50,000	$1,300,000
2009		$50,000	$1,350,000
2010		$50,000	$1,400,000

(NOTE: This example does not provide for compounded interest, and assumes the taxpayer is in the 35-percent tax bracket, does not have an investment in a Passive Foreign Investment Company (PFIC), files a return but does not include the foreign account or the interest income on the return, and the maximum applicable penalties are imposed.)

If the taxpayers in the above example come forward and their voluntary disclosure is accepted by the IRS, they face this potential scenario:

They would pay $518,000 plus interest. This includes:

Tax of $140,000 (8 years at $17,500) plus interest,
An accuracy-related penalty of $28,000 (i.e., $140,000 x 20%), and
An additional penalty, in lieu of the FBAR and other potential penalties that may apply, of $385,000 (i.e., $1,400,000 x 27.5%).

If the taxpayers didn’t come forward, when the IRS discovered their offshore activities, they would face up to $4,543,000 in tax, accuracy-related penalty, and FBAR penalty.”

The IRS example to enter the OVDP has 75% of the OVDP collection amount from the FBAR penalty. The FBAR penalty is 2.75 larger than the tax due. But not entering leads to owing an amount four times the account value.

Thus, judged by the amount of tax funds recovered, the OVDP has substantially underperformed to date. But by leveraging a taxpayer’s lack of compliance with the non-tax FBAR, the OVDP and IRS civil prosecutions appear to meet performance goals of raising revenue and obtaining overall tax compliance for US persons with foreign accounts and/or residing abroad. Or do they?

Have These Initiatives Increased Taxpayer Compliance?

The 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. 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). Moreover, Non-Resident Aliens (NRAs) must file a FBAR as well. Thus, all the initiatives to date have produced a compliance rate below 10% compliance. Sounds more like the War on Drugs rather than a drive to increase tax compliance.

This is not to say that obtaining a highly level of compliance with the tax law, like compliance with the drug laws and DUI laws, is not a public good in itself – such tax compliance is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance. The ones used to date just haven’t worked very well, and caused more problems (the War on Drugs has led to one of the highest rates of imprisonment of the world, that some have called a scorched earth policy against young male minorities in particular).

Have These Initiatives Met the Tax Collection Goals?

The Subcommittee Report states: “Offshore tax evasion has been an issue of concern … because lost tax revenues contribute to the U.S. annual deficit, which today exceeds $500 billion. Collecting unpaid taxes is one way to reduce the deficit without raising taxes.”

The Senate Subcommittee reported that: “According to the IRS, the current estimated annual U.S. tax gap is $450 billion, which represents the total amount of U.S. taxes owed but not paid on time, despite an overall tax compliance rate among American taxpayers of 83 percent. 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 the number of $150 billion a year of lost tax revenue due to “offshore tax schemes”, the Senate Report primarily cites its own investigatory reports and third party articles that refer to transfer pricing issues. While transfer pricing regulations have been under scrutiny, at least by the Democrats, in the Senate, it is certainly not commonly held by those same Democrats that transfer pricing is illegal or constitutes an “offshore scheme”.

It is proven beyond a doubt by the UBS, Credit Suisse, and other similar investigations, validated by the OVDI disclosures, that some Americans are noncompliant, and that some of those noncompliant Americans would owe tax if disclosing foreign income on their tax returns. There is also no doubt that the total number of noncompliant Americans between 2008 and 2013 was more than the 43,000 who were brought in from the wilderness.

There is also no doubt that the tax that would have been collected from these noncompliant taxpayers had they been compliant during their time in the wilderness is in fact, relative to the reported figure of $150 billion lost annually, miniscule (somewhere probably between $300 million and $500 million a year for lost tax (recalling the majority of the $6 billion collected representing FBAR penalties, tax penalties, and interest). To date, of the $150 billion referred to as lost a year to offshore schemes, only approximately .003% (a third of one percent) has been collected – and that assuming the higher number of $500 million a year. Not a good result by any measure. And not going to dent the annual $450B – $500B deficit (not including unfunded liabilities).

Are More Than 90% of Taxpayers with Foreign Accounts Tax Evaders?

The Taxpayer Advocate, relying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad. Most are required to file a FBAR. 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).

Many more U.S. residents have FBAR filing requirements because of having signatory, control, or ownership of an overseas account. The Department of Homeland Security reported in Population Estimates (July 2013) that an estimated 13.3 million LPRs lived in the United States as of January 1, 2012, some of who will have FBAR filing requirements.

For 2011, approximately four million individual returns included foreign source income and 450,000 included the Foreign Earned Income Exclusion. Yet the IRS received only 807,040 FBAR submissions as recently as 2012.

Based on these numbers, more than 90% of taxpayers with foreign accounts are NOT compliant with the FBAR filing requirement. Add it up: 7.6 million Americans abroad, 13.3 LPRs in the USA, at least 1 million NRAs in the US, and some number of American citizens in the US with foreign accounts. Must equal at least 10 million taxpayers that should be filing the FBAR. The IRS has stated that a substantial number of US taxpayers living abroad do not file tax returns at all.

The IRS reports that 87% of American residing taxpayers are tax compliant. So the remaining 13% … statistically speaking, being an American residing in America and having a foreign account is indicative of tax evasion, especially if FBAR is considered a “tax” compliance obligation (which it is not).

Based on these numbers, being an American living in a foreign country is a leading cause of criminality. What the statistics do not tell is which comes first: criminality or foreign activity? A person tends toward criminality and thus opens a foreign account or moves to a foreign country? Or the act of moving abroad to a foreign country leads to criminality? Absurd questions?

Is the FBAR form necessary? Why has it not been combined with the 1040? Why not with the new 8938? Questions to ponder in another article.

Posted in Compliance, FATCA | Tagged: FATCA, FBAR, IRS, offshore, OVDP | 8 Comments »

Filing Requirement for NRA with US Source Income?

Posted by William Byrnes on June 10, 2014

Nonresident Aliens with US Source Income?

Nonresident aliens (“NRA”) who received income from U.S. sources in 2013 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 16 depending on sources of income. See Taxation of Nonresident Aliens.

Who is a Nonresident Alien for US tax Purposes?

An alien is any individual who is not a U.S. citizen or U.S. national.

A resident alien is an alien who has passed either the green card test or the substantial presence test. A nonresident alien is everyone other alien.

Who Must File a US tax Return?

If an alien is covered under either of the following 2 categories , then the alien must file a US tax return:

A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year.
- However, if U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501, Exemptions, Standard Deduction, and Filing Information), then the alien is not required to file a tax return.
A nonresident alien individual who is not engaged in a trade or business in the United States and has U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.

Which Income to Report?

A nonresident alien’s income that is subject to U.S. income tax must generally be divided into 2 categories:

Income that is Effectively Connected with a trade or business in the United States
U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP)

Effectively Connected Income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents. Effectively Connected Income should be reported on page one of Form 1040NR, U.S. Nonresident Alien Income Tax Return.

FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30% (or lower treaty rate) and no deductions are allowed against such income. FDAP income should be reported on page four of Form 1040NR.

Which Form to File?

Nonresident aliens who are required to file an income tax return must use:

Form 1040NR, U.S. Nonresident Alien Income Tax Return (PDF) or,
Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents(PDF) if qualified. Refer to the Instructions for Form 1040NR-EZ to determine if you qualify.

What is US Source Income Subject to US tax?

A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. The general rules for determining U.S. source income that apply to most nonresident aliens are shown below:

**Summary of Source Rules for Income of Nonresident Aliens**
Item of Income	Factor Determining Source
Salaries, wages, other compensation	Where services performed
Business income: Personal services	Where services performed
Business income: Sale of inventory -purchased	Where sold
Business income: Sale of inventory -produced	Where produced (Allocation may be necessary)
Interest	Residence of payer
Dividends	Whether a U.S. or foreign corporation*
Rents	Location of property
Royalties: Natural resources	Location of property
Royalties: Patents, copyrights, etc.	Where property is used
Sale of real property	Location of property
Sale of personal property	Seller’s tax home (but see Personal Property, in Chapter 2 of Publication 519, for exceptions)
Pensions	Where services were performed that earned the pension
Scholarships – Fellowships	Generally, the residence of the payer
Sale of natural resources	Allocation based on fair market value of product at export terminal. For more information, see IRC section 1.863–1(b) of the regulations.
*Exceptions include: a) Dividends paid by a U.S. corporation are foreign source if the corporation elects the Puerto Rico economic activity credit or possessions tax credit. b) Part of a dividend paid by a foreign corporation is U.S. source if at least 25% of the corporation’s gross income is effectively connected with a U.S. trade or business for the 3 tax years before the year in which the dividends are declared.

Posted in Taxation | Tagged: nonresident alien, NRA, source of income, withholding | Leave a Comment »

The FATCA GIIN list analyzed by IGA and by countries

Posted by William Byrnes on June 8, 2014

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

The June 2^nd FATCA GIIN list included 77,354 financial institutions from 205 countries and jurisdictions (give or take 1), nearly 75% of which are covered by Model 1 IGA. As of June 8, 2014, only 70 IGAs have been signed or treated as if signed. Below is a list of 100 country and jurisdiction FFI registrations, and the Deemed Compliant FFI registration by IGA Model 1. (see follow up June 16 article with more countries and analysis of FFI registrations: https://profwilliambyrnes.com/2014/06/16/list-of-ffi-registrations-by-country/)

Do 180 More Countries and Jurisdictions Need IGAs?

The USA recognizes 196 independent states in the world (the IRS recognizes Palestine as a State according to the FATCA list, otherwise the State Department only recognizes 195 – see my June 2^nd article here), 67 dependencies of states, and has contacts with Taiwan. But 14 of the dependencies are administered by the United States. So with Taiwan and Palestine counted, 54 jurisdictions have financial institutions that probably must register for FATCA.

I have previously written that not each of these 54 dependencies probably requires an IGA. My estimate was that approximately 16 dependencies of the 54 have both local responsibility with regard to tax policy and more than de minimis US source income exposure, such as investments in US Treasuries, for the local authorities to seek an IGA. Such dependencies include by example Bermuda, Cayman Islands, and Hong Kong.

A host of dependencies, such as Antarctica and various atolls, have no (current) global economic relevance. Yet, even the British Indian Ocean Territory, Falkland Islands, French Southern Territories, and Christmas Island have a registered FATCA financial firm each. In that the French Southern Territories does not have a permanent population, being scientific research stations on uninhabited Islands by Madagascar, it is curious that the financial firm DBSBV Holding Sci registered there (I cannot find any information on this company? Any readers want to help me on this one?). Just as curious is the Russian Bank’s AK BARS Investments Corporation registering in the British Indian Ocean Territory, which is an insignificant British and American military outpost with a couple hundred military staff, Mauritius and Philippine foreign-contract workers. Christmas Island with its population of 2,000 entertains the FFI registration of Everbright Equity Advantage Fund (I wonder if anyone within these four extremely small dependencies has even heard of FATCA).

Thus, based on the GIIN list of registrations from dependent jurisdictions and multiple reader emails, I acknowledge underestimating the amount of dependent “jurisdictions” that will require an IGA, at least a Model 2. I thought that such minor dependencies FFIs would generally fall under registration exceptions and instead only require W-8BEN-E documentation (e.g. “Certified Deemed-Compliant Nonregistering Local Bank”, “Certified Deemed-Compliant FFI with Only Low-Value Accounts”).

Going forward in my articles, my previous estimate of 212 states and jurisdictions that probably could benefit from an IGA (Model 2 for jurisdictions without populations) will be replaced by the full number of countries and jurisdictions recognized by the US for FATCA, which is 250, accommodating even the economically insignificant territories like British Indian Ocean Territory and French Southern Territories, and the contentious ones such as Palestine and Taiwan. Therefore, as of June 8th, 180 countries and jurisdictions are without IGAs that could benefit from one – substantially more than previously estimated.

FFI Registration Among Model 1 IGAs and the Rest

Did all the FFIs that are in the 180 countries and jurisdictions that do not have an IGA register for a GIIN by the final June 3^rd deadline to be included in the July GIIN list? Not even close.

Only 77,353 registered from 205 countries and jurisdictions by the initial May 5^th extended deadline for the June 2^nd GIIN list. Of those, 74% (57,170) are from Model 1 IGAs (signed and recognized) and thus Deemed Compliant FFIs (reporting to their respective revenue authorities pursuant to local regulations, not directly to the IRS).[1] These DCFFIs had until the end of the year to register, withholding only beginning for payments from January 1^st. Only Kosovo, as a Model 1 IGA country, did not have a single FFI registration.

The remaining 10,260 registered FFIs are from 136 of the 205 countries on the GIIN list. Thus, of 180 non-IGA countries and jurisdictions, 44 of them did not have any FFI registrations yet, for which withholding begins upon withholdable payments to non compliant FFIs from July 1^st.

Approximately 20% of the total registered FFIs are Cayman Islands firms (14,836) (see my article of June 2nd).

BRIC Registration

Brazil leads the BRIC countries with 2,258 FFI registered, followed by Russia (514), India (246) with China only having 211. Based on this list, it does not appear that India and China have wide spread acceptance for FATCA yet. Will Crimea financial firms register under the Ukraine or Russia (probably Russia)? Will the IRS recognize such registration?

NAFTA Registrations

2,264 FFIs registered from Canada and Mexico at 418.

Major OECD Countries Registrations

Australia (1,864), France (2,290), Germany (2,254), Ireland (1,756) and Netherlands (2,053).

European Financial Centers Registrations

Switzerland (4,040), Luxembourg (3,560), Austria (2,978), Lichtenstein (239).

Guernsey (2,395), Jersey (1,618), Isle of Man (312) and Gibraltar (96).

Caribbean Financial Centers Registrations

BVI (1,837), Bahamas (610), Bermuda (1,242) and Panama (450).

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. As I wrote June 2, I suspect that this will be a contentious issue between the US and Israel because while “the State of Palestine” is not yet recognized by the State Department (it’s still the Palestinian Territories), this new IRS recognition may be an ‘under the radar screen’ Administration initiative. It may have just been a contract programmer providing his/her own sentiments to the registration list.

North Korean Registrations

I listed North Korean because, as you are probably aware, it is 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

So who registered from North Korea? Branches of Bank or America, Wells Fargo, and Deutsche Bank (search the first part of the GIIN until you find the ultimate party for it).

It is possible to receive exceptions to the OFAC sanctions for certain activities. Like I assume that US Aid to North Korea (a.k.a. nuke-mail shakedown funds) has to be transferred there by the US government somehow. I had assumed this occurred through approved intermediary South Korea banks, but now that I have reviewed the GIIN list, it appears that maybe some funds are transferred directly between countries.

“Other” Registrations

23 financial firms listed “other” as the country / jurisdiction. I am not sure why, given that it appears by my glance over – each has a country in which to register. 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?

Model 1 IGA – 29 (followed by number of registered FFIs)

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

Model 1 IGA – 33 (followed by number of registered FFIs)

Azerbaijan (5-16-2014): 16
Bahamas (4-17-2014): 610
Barbados (5-27-2014): 123
Brazil (4-2-2014): 2,258
British Virgin Islands (4-2-2014): 1,837
Bulgaria (4-23-2014): 72
Colombia (4-23-2014): 172
Croatia (4-2-2014): 50
Curaçao (4-30-2014): 173
Czech Republic (4-2-2014): 92
Cyprus (4-22-2014): 279
India (4-11-2014): 246
Indonesia (5-4-2014): 307
Israel (4-28-2014): 321
Kosovo (4-2-2014) – nil
Kuwait (5-1-2014): 77
Latvia (4-2-2014): 40
Lithuania (4-2-2014): 21
New Zealand (4-2-2014): 334
Panama (5-1-2014): 450
Peru (5-1-2014): 164
Poland (4-2-2014): 164
Portugal (4-2-2014): 255
Qatar (4-2-2014): 46
Romania (4-2-2014): 109
Seychelles (5-28-2014): 37
Singapore (5-5-2014): 783
Slovak Republic (4-11-2014): 54
South Africa (4-2-2014): 317
South Korea (4-2-2014): 396
Sweden (4-24-2014): 312
Turkey (6-3-2014): 65
Turks and Caicos Islands (5-12-2014): 27
United Arab Emirates (5-23-2014): 135

Model 2 IGA – 2

Armenia (5-8-2014)
Hong Kong (5-9-2014)

FFIs registered by a selection of 100 of 205 countries and jurisdictions.

Afghanistan: 7
Andorra: 33
Anguilla: 70
Antigua & Barbuda: 35
Argentina: 269
Armenia: 27
Aruba: 13
Australia: 1,864
Austria: 2,978
Azerbaijan: 16
Bahamas: 610
Barbados: 123
Belgium: 249
Belize: 122
Bermuda: 1,242
Brazil: 2,258
Bulgaria: 72
BVI: 1,837
Canada: 2,264
Cayman Islands: 14,836
China: 211
Christmas Island: 1 (Everbright Equity Advantage Fund)
Colombia: 172
Comoros Is.: 1
Costa Rica: 122
Cook Is.: 72
Croatia: 50
Curacao: 173
Cyprus: 279
Czech Republic: 92
Denmark: 186
Estonia: 26
Falkland Islands: 1
Finland: 466
France: 2,290
French Southern Territories: 1
Germany: 2,554
Gibraltar: 96
Greenland: 1
Guernsey: 2,395
Honduras: 47
Hong Kong: 1,539
Hungary: 101
Iceland: 5
India: 246
Indonesia: 307
Ireland: 1,756
Isle of Man: 312
Israel: 321
Italy: 456
Jamaica: 41
Japan: 3,251
Jersey: 1,618
North Korea: 4
South Korea: 396
Kuwait: 77
Latvia: 40
Lichtenstein: 239
Lithuania: 21
Luxembourg: 3,560
Macao: 36
Malta: 235
Mauritius: 727
Mexico: 418
Monaco: 98
Netherlands: 2,053
New Zealand: 334
Norway: 312
Other: 22
Panama: 450
Peru: 164
Poland: 164
Portugal: 255
Qatar: 46
Romania: 109
Russia: 514
St Kitts & Nevis: 70
St Lucia: 60
Saint Pierre & Miquelon: 1
San Marino: 14
Saudi Arabia: 17
Seychelles: 37
Singapore: 783
South Africa: 317
Spain: 1,187
Slovakia: 54
Slovenia: 20
St Vincent & the Grenadines: 104
Sweden: 312
Switzerland: 4,040
Taiwan: 408
Turkey: 65
Turks & Caicos: 27
Ukraine: 105
United Arab Emirates: 135
United Kingdom: 6,263
USA: 562
Uruguay: 131
Venezuela: 29
Wallis & Fortuna: 1

[1] Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W8-BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

Lexis Guide to FATCA Compliance – 2015 Edition

A free download of the first of the 34 chapters is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

<— Subscribe by email on the left menu to the FATCA Updates on this blog: https://profwilliambyrnes.com/category/fatca/

Chapter 1 Background and Current Status of FATCA
Chapter 1A The International Financial System and FATCA
Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
Chapter 2A FATCA Internal Policy
Chapter 3 FATCA Compliance and Integration of Information Technology
Chapter 4 Financial Institution Account Remediation
Chapter 4A FATCA Customer Outreach
Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
Chapter 6 Determining U.S. Ownership of Foreign Entities
Chapter 7 Foreign Financial Institutions
Chapter 7A Account reporting under FATCA
Chapter 8 Non-Financial Foreign Entities
Chapter 9 FATCA and the Offshore Trust Industry
Chapter 10 FATCA and the Insurance Industry
Chapter 11 Withholding and Qualified Intermediary
Chapter 12 FATCA Withholding Compliance
Chapter 13 “Withholdable” Payments
Chapter 13A Reporting Payments
Chapter 14 Determining and Documenting the Payee
Chapter 14A W8 Equivalents
Chapter 15 Framework of Intergovernmental Agreements
Chapter 16 Analysis of Current Intergovernmental Agreements
Chapter 17 European Union Cross Border Information Reporting
Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
Chapter 19 Germany
Chapter 20 Ireland
Chapter 21 Japan
Chapter 22 Mexico
Chapter 23 Switzerland
Chapter 24 United Kingdom
Chapter 25 Brazil
Chapter 26 British Virgin Islands
Chapter 27 Canada
Chapter 28 Spain
Chapter 29 China
Chapter 30 Netherlands
Chapter 31 Luxembourg
Chapter 32 Russia
Chapter 33 Turkey
Chapter 34 India
Chapter 35 Argentina
Chapter 36 Aruba
Chapter 37 Australia
Chapter 38 Bermuda
Chapter 39 Colombia
Chapter 40 Cyprus
Chapter 41 Hong Kong
Chapter 42 Macau
Chapter 43 Portugal
Chapter 44 South Africa
Chapter 45 France
Chapter 46 Gibraltar
Chapter 47 Guernsey
Chapter 48 Italy

Posted in FATCA | Tagged: FATCA, GIIN list, IGA | 17 Comments »

Teaching an old dog a new trick: the modified endowment contract (MEC) and the modern portfolio

Posted by William Byrnes on June 6, 2014

The MEC

A MEC is essentially a type of cash value life insurance policy that is subject to less favorable tax rules because it has been funded with premiums during the first seven years of the policy’s existence that exceed certain maximum amounts (depending on the policy’s benefit level and cost). Despite this, the MEC’s worth today can remain substantial.

In some cases, dismissing the MEC too quickly can cause your clients to miss out on a valuable product. For clients with sufficient means, the opportunity to rapidly fund a life insurance contract so as to become subject to the rules governing MECs may actually provide a powerful strategy in the well-rounded planner’s arsenal.

read this analysis in the article “The MEC and the Modern Portfolio“

Posted in Insurance, Retirement Planning, Wealth Management | Tagged: financial planning, life insurance, MEC, Retirement planning | Leave a Comment »

What are the tax advantages of owning exchange-traded funds (ETFs)? 10 tax tips to investments …

Posted by William Byrnes on June 5, 2014

What are the tax advantages of owning exchange-traded funds (ETFs)?

ETFs enjoy a more favorable tax treatment than mutual funds due to their unique structure. …

How are ETFs taxed? …

How are dividends received from a mutual fund taxed?

… may pay three types of dividends to their shareholders …

These and 7 other tax questions about investments are answered in our article and analysis on LifeHealthPro

Posted in Taxation, Wealth Management | Tagged: dividends, ETF, investments, mutual funds, tax | Leave a Comment »

An postretirement healthcare strategy overlooked

Posted by William Byrnes on June 4, 2014

Funding postretirement medical expenses in today’s marketplace is no small task, especially for the early retiree who has yet to qualify for Medicare coverage and may be reliant on an exchange-purchased health plan with a high deductible. VEBAs and other similarly complex structures have existed for years to help to provide additional funding, but options have evolved so that clients now have more practical and accessible solutions.

Read about “the rollover strategy“

Posted in Retirement Planning | Tagged: Health care, high deductible health plans (HDHPs) | Leave a Comment »

final deadline passes and only 70 IGAs in place

Posted by William Byrnes on June 3, 2014

The June 3^rd deadline for FATCA FFI registration to be included on the July 1 GIIN list has come and now gone. In the past two weeks, only four additional IGAs have been added to the list (Turkey, Seychelles, UAE and Barbados) so that as of Tuesday June 3, 2014, only 70 FATCA IGAs have been signed or treated as if signed. These 70 include 29 signed Model 1s with another 34 treated as if signed, and 5 signed Model 2s with 2 treated as if signed. (Thank you to reader Alain Thielemans who alerted me to the two new IGAs published by Treasury today before I posted this story).

140 IGAs still left to be agreed by Treasury?

The USA recognizes 196 independent states in the world (the IRS recognizes Palestine as a State according to the 23 State of Palestine FFIs on the IRS FATCA list, otherwise the State Department only recognizes 195, at least according to its website), 67 dependencies of states, and has contacts with Taiwan. But not each of these 67 dependencies requires an IGA. 14 of these jurisdictions are dependencies of the United States for which the financial institutions are not included in the definition of “foreign financial institutions” subject to FATCA registration.

Approximately 16 dependencies of the remaining 53 have both local responsibility with regard to tax policy and more than de minimis US source income exposure, such as investments in US Treasuries, for the local authorities to seek an IGA. Such dependencies include by example Bermuda, Cayman Islands, and Hong Kong. Taiwan has its own peculiar status, claiming to represent the central government of greater China (the US of course recognizes Beijing). Other dependencies, like the French departments of French Guiana, Guadeloupe, Martinique, Mayotte and Reunion, do not have local responsibility for fiscal policy and thus are protected within the IGA of the parent-state. And a host of dependencies, such as Antarctica and various atolls, have no (current) global economic relevance.

Yet interestingly, even the British Indian Ocean Territory has a registered FATCA financial firm, albeit a Russian financial institution AK BARS Investments Corporation (see http://www.akbars.ru/en/about/). Falkland Islands even had a registration, a branch, as did Wallis and Futuna (a French Pacific territory).

Thus, 196 recognized states and 16 economically relevant, semi-autonomous dependencies form the pool of 212 states and jurisdictions that probably need an IGA. As of June 3rd, 70 have an IGA recognized by US Treasury, leaving 142 without. FFIs in the remaining 140 countries and jurisdictions that did not register by today will have 30% withheld for Title IV (FATCA) purpose by US withholding agents who are gearing up their software systems to begin this withholding for payments made from July 1^st.

How many FFIs did not register for FATCA (yet)?

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on the July 1^st GIIN list of participating foreign financial institutions (“PFFI”) passed. See my previous article about the May 5th deadline and consequences of its passing that applied to all FFIs in the non-IGA states and jurisdictions.

Did all the FFIs that are in the 142 countries and jurisdictions that do not have an IGA register for a GIIN? Not even close since only 77,353 registered by the May 5 deadline to be included on the June 2nd GIIN list, and 20% of those were Cayman Islands firms (see my article yesterday breaking down the list).

There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration. It is a range of as few as 80,000 entities that qualify as FFIs still need to register or complete registration for a GIIN, but it could be as many as 380,000 still need to register. The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks. The IRS has said that “At this time, the full FFI list is expected to be less than 500,000 records.” If Cayman Islands is an indicator of a jurisdiction, then at 14,836 registered, the GIIN list will swell to the 500,000 figure by end of year.

BVI has 1,837 so far, 2.053 Netherlands financial firms registered, and nearly twice as many Swiss firms, 4,040, had GIINs. Liechtenstein only had 239 register. Of the BRIC countries, only 211 China firms were registered to date, 246 Indian ones, and 514 Russian ones, compared to 2,258 for Brazil.

It is possible that on July 1st an unregistered FFI is considered non-participating (NPFFI) for purposes of FATCA withholding, but by example, on August 1st its country agrees an IGA in substance that Treasury announces on its FATCA site and the NPFFI goes back to FFI non-withholding status because of the extension related to IGAs, at least until that final December 22 deadline mentioned in Announcement 2014-1. Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W8-BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

Is the June 3rd Deadline a Drop-Dead Deadline?

Yes and No. 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.”)

Yet, the IRS built in 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)

Do FFIs in IGA countries have an extension until December 22 for FATCA Registration?

Financial institutions (FFIs) in the 68 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.

The situation of the last list to be published for 2014 and, more importantly, the last date to register as a Model 1 FFI to ensure being included on that list, is somewhat fluid. In the past 18 months, the IRS has several times amended its deadlines and its timelines for GIIN registration. Thus, it is at least feasible that another registration or withholding start date extension is granted before the end of 2014 (obviously Treasury will vehemently deny any more extensions on the horizon, but last year it did not expect a government shut down and this year it extended the registration date by at least 10 days weeks before the deadline of April 25).

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)

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.

The IRS will release its final 2014 list of FATCA compliant financial institutions (thus not subject to FATCA 30% withholding on January 1, 2015 and onward) most likely on Wednesday, December 31, 2014 (according to the United Kingdom guidance quoted above), albeit it seems just as reasonable for a Friday, January 2 list to be released. The 90 day safeguard mentioned above is also in place for the IGA deadlines.

Jurisdictions that have signed agreements:

Model 1 IGA – 29

Australia (4-28-2014)
Belgium (4-23-2014)
Canada (2-5-2014)
Cayman Islands (11-29-2013)
Costa Rica (11-26-2013)
Denmark (11-19-2012)
Estonia (4-11-2014)
Finland (3-5-2014)
France (11-14-2013)
Germany (5-31-2013)
Gibraltar (5-8-2014)
Guernsey (12-13-2013)
Hungary (2-4-2014)
Honduras (3-31-2014)
Ireland (1-23-2013)
Isle of Man (12-13-2013)
Italy (1-10-2014)
Jamaica (5-1-2014)
Jersey (12-13-2013)
Liechtenstein (5-19-2014) <– IGA officially signed, moved from list below
Luxembourg (3-28-2014)
Malta (12-16-2013)
Mauritius (12-27-2013)
Mexico (4-9-2014)
Netherlands (12-18-2013)
Norway (4-15-2013)
Slovenia (6-2-2014) <– IGA officially signed, moved from list below
Spain (5-14-2013)
United Kingdom (9-12-2012)

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance and have consented to being included on this list (beginning on the date indicated in parenthesis):

Model 1 IGA – 34

Azerbaijan (5-16-2014)
Bahamas (4-17-2014)
Barbados (5-27-2014) <– new IGA agreed
Brazil (4-2-2014)
British Virgin Islands (4-2-2014)
Bulgaria (4-23-2014)
Colombia (4-23-2014)
Croatia (4-2-2014)
Curaçao (4-30-2014)
Czech Republic (4-2-2014)
Cyprus (4-22-2014)
India (4-11-2014)
Indonesia (5-4-2014)
Israel (4-28-2014)
Kosovo (4-2-2014)
Kuwait (5-1-2014)
Latvia (4-2-2014)
Lithuania (4-2-2014)
New Zealand (4-2-2014)
Panama (5-1-2014)
Peru (5-1-2014)
Poland (4-2-2014)
Portugal (4-2-2014)
Qatar (4-2-2014)
Romania (4-2-2014)
Seychelles (5-28-2014) <– new IGA agreed
Singapore (5-5-2014)
Slovak Republic (4-11-2014)
South Africa (4-2-2014)
South Korea (4-2-2014)
Sweden (4-24-2014)
Turkey (6-3-2014) <– new IGA agreed
Turks and Caicos Islands (5-12-2014)
United Arab Emirates (5-23-2014) <– new IGA agreed

Model 2 IGA – 2

Armenia (5-8-2014)
Hong Kong (5-9-2014)

Practical Compliance Aspects of FATCA and GATCA

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

IRS FFI List FAQs

Posted by William Byrnes on June 3, 2014

FFI List Fields

#

Questions

Answers

Q1.

What fields will be contained on the FFI list?

The FFI list will contain only three fields: financial institution (FI) name or the term “branch,” Global Intermediary Identification Number (GIIN), and either country of residence for tax purposes (for an FI) or branch country (for branches).

Q2.

What are the maximum lengths of each field?

The FI name field and country fieldscan be up to 75 characters each. Currently there is a 40 character input limitation for the FI name, but thismay be expanded up to 75 characters in a future release.The GIIN field is 19 characters, including the period separators.

The country field is using the ISO 3166-1standard country list, with the maximum length currently of 44 characters; however, as this list is updated, the maximum length could increase.

If you plan to download the FFI list and import it into your system, please see the FFI list schema and test file link for more information on the format.

FFI List

#	Questions	Answers
Q1.	Will the monthly update to the FFI List contain just the additions and deletions from the prior month after the initial list is published?	No, only the current list of approved FI’s will be published on IRS.gov. At the beginning of each month, a complete new list will be published for all financial institutions and branches that have an assigned and approved GIIN as of a specified cut-off date five business days prior to the end of the previous month.
Q2.	Will an archive of previously released versions of the monthly FFI List be available for viewing and download on the IRS Website?	No, only the current list of approved FI’s will be available on the IRS Website. The previous month’s list will not be available to the public.
Q3.	How frequently will the FFI list file be updated?	The FFI list will be updated monthly on the 1st of the month.
Q4.	What languages will the FFI list be available in?	The FFI list will be published in English only.
Q5.	Is there anything in the format of the FFI list that indicates that an FFI is a Deemed Compliant or a Participating FFI?	No, the list does not indicate the FATCA classification.
Q6.	How many records are expected in the full FFI list?	At this time, the full FFI list is expected to be less than 500,000 records.

Downloading

#	Questions	Answers
Q1.	What are the available FFI list file formats for download?	You will only need to download the completeFFI list if you plan to import the list into your system. You will be able to search, view and download partial information using theFFI List search and download tool directly from the IRS Webpage. (See searchingcategory below).If you plan to download the complete FFI list, it will be available in XML and CSV (comma delimited) formats. You can also download your search results (partial list) in XML, CSV or PDF formats. The FFI list will not be available in spreadsheet products, but the CSV file can be easily imported into most spreadsheet products
Q2.	Do you need to be a registered user with a login and password to access the FFI List search and download tool, and download the FFI list on the IRS website?	No, you do not need to be a registered user to access the FFI List search and download tool and download the FFI list on the IRS website. It is accessible to anyone with an internet connection.
Q3.	Will there be a web service (SOAP based) – where FFIs can automatically download the latest version of the FFI list?	No, the FFI list file will not be available for automatic download via a web service. The complete list can be downloaded manually in CSV or XML format or a partial list (from your search results) can be downloaded manually in CSV, XML or PDF format via the irs.gov web page.
Q4.	Is the FFI List file available via FTP?	No, the FFI list file will not be available via FTP. It can be downloaded manually via the irs.gov web page.

Searching

#	Questions	Answers
Q1.	Will a search tool be available?	In addition to downloading the full FFI list, the FFI List search and download tool will be available on the web site. This tool enables a user to create a partial list using search criteria such as the GIIN, countries, and/or financial institution name. These search results can be exported to an XML, CSV or PDF file. A CSV file can be imported into most spreadsheet products and word processor document products.

Legal Entity Name

#	Questions	Answers
Q1.	Will the Legal Entity Names be standardized in any way, e.g., Bank Corp. vs. Bank Corporation or Chairs Ltd. vs. Chairs Limited vs. Chairs LTD.?	The FFI list will contain the financial institution (FI) name or the term “branch” for branches. The FI name will display on the list in the exact way it was input on the registration.
Q2.	How do I find the legal entity name of the branches in the FFI list?	The legal entity names of branches are not provided on the FFI list. The FFI list will contain the term “branch” in the FI name field.
Q3.	Are there any other “special” names similar to “Branch” that might appear on the list?	No, there will be no other special names. The schema and test files provide the format and sample data.
Q4.	Can the FI Legal Name be changed once it appears on the FFI List?	The Financial Institution (FI) Names on the FFI list are obtained from the data entered by the FI on their registration form or online registration system. The FI can edit this field (or any other field except the FI type) on the online registration system at any time. If this field is changed by the FI, the updated name will appear on the next published list.

XML/CSV Files

#	Questions	Answers
Q1.	Will the final FATCA FFI xml file contain a file date/production time identifier/tag?	No, the XML file will not contain a file date or production time identifier in the content of the file itself. However, the date of the file will be posted on the web page.
Q2.	Will the CSV format file contain a trailer record identifying the number of records or a simple end marker?	No, the CSV file will not contain a trailer record or end marker. The test file on the FFI list Schema and Test File page provides the exact format that the published list will contain.

Posted in FATCA | Tagged: FATCA, FFI list, IGA | Leave a Comment »

77,353 FFI Listed by IRS as FATCA compliant – here’s a breakdown

Posted by William Byrnes on June 2, 2014

The IRS has published the FATCA compliant Foreign Financial Institution (FFI) list in downloadable XMS (excel) format. The list contains the current 77,353 names of financial institutions and other entities that have completed Foreign Account Tax Compliance Act (FATCA) registration with the IRS and obtained a global intermediary identification number (GIIN). At least another 70,000 – 100,000 FFIs remain to register and/or are waiting to receive a GIIN, although the IRS has stated in the FFI List FAQs the total number could reach as high as 500,000.

From July 1st a withholding of 30% will apply to FATCA withholdable payments to the 140 countries and jurisdictions without an IGA. 68 countries and jurisdictions have a an IGA with the USA and thus a FATCA registration extension until the end of the year. See yesterday’s article about the IGAs and other deadlines.

20% of the FATCA compliant financial firms hailed from Cayman Islands at 14,836 registered whereas BVI had 1,837. 2.053 Netherlands financial firms registered thus far, whereas nearly twice as many Swiss firms had GIINs at 4,040. Liechtenstein only had 239 register. Of the BRIC countries, only 211 China firms were registered to date, 246 Indian ones, and 514 Russian ones, compared to 2,258 for Brazil.

The most obscure GIIN registration is perhaps AK BARS Investments Corporation which listed BRITISH INDIAN OCEAN TERRITORY. Falkland Islands even had a registration, albeit a branch, as did Wallis and Futuna (French Pacific territory). The most contentious GIIN registrations will be the 23 from “the State of Palestine” (I must have missed the State Department press release recognizing its statehood).

The FFI List Search and Download Tool contains a link to a Search and Download Tool that allows the FFI List to be searched and downloaded to ensure ease of use. A User Guide for the list search-and-download tools is posted online to explain the convenient features provided.

A cumulative updated FFI list will be posted monthly that will contain the names of all financial institutions and other entities that have completed FATCA registration with the IRS and obtained a GIIN up to 5 business days before the end of the previous month. The first updated list will be posted by the IRS on July 1.

Practical Compliance Aspects of FATCA and GATCA

Posted in FATCA | Tagged: FATCA, FFI, FFI list, IGA, IRS | 4 Comments »

Only 68 IGAs the day before the June 3rd FATCA registration deadline

Posted by William Byrnes on June 2, 2014

The silence is deafening. In the past two weeks, only two additional IGAs have been added to the list (UAE and Barbados) so that as of Monday June 2, 2014, only 68 FATCA IGAs have been signed or treated as if signed. These 68 include 28 signed Model 1s with another 33 treated as if signed, and 5 signed Model 2s with 2 treated as if signed.

FFIs in the remaining countries and jurisdictions rush to register by tomorrow, June 3^rd, with the FATCA portal that they may be included on the GIIN List by the July 1^st start of FATCA withholding. Meanwhile, US withholding agents gear up to begin FATCA withholding for payments from July 1^st.

What if these Non-IGA countries agree an IGA after July 1?

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on today’s June 2nd GIIN list of participating foreign financial institutions (“PFFI”) passed May 5th. See my previous article about the May 5th deadline and consequences of its passing that applied to all FFIs in the non-IGA states and jurisdictions.

Did all the FFIs that are in the remaining countries and jurisdictions that do not have an IGA register for a GIIN? There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration. It is possible that 80,000 entities that qualify as FFIs still need to register or complete registration for a GIIN. The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks.

Is the June 3rd Deadline a Drop-Dead Deadline?

Yet, the IRS built in a 90 day safeguard for FFIs when a GIIN has been applied for but not yet received:

Do FFIs in IGA countries have an extension until December 22 for FATCA Registration?

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

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.

What Deadlines has Treasury NOT moved?

For “individual” held accounts, Treasury has neither provided an extension to the FATCA compliance requirements, nor from withholding as of July 1st. Thus, from July 1 these accounts must be characterized as “new” accounts for FATCA diligence procedures to determine whether the beneficial owner is a US person.

For accounts of ‘entities’ , while an FFI may still characterize accounts opened until December 31 as “pre-existing” accounts, Treasury did not mention extending the deadlines applicable for FATCA diligence procedures to determine whether the entity’s beneficial owner is a US person.

The pre-existing account due diligence analysis remains with three deadlines:

December 31, 2014 for prima facie FFI account holders,
June 30, 2015 for high value accounts, and
June 30, 2016 for all remaining accounts, such as “pre-existing” entity accounts).

Note that FATCA withholding does not apply to all FATCA withholdable payments immediately on July 1st. FATCA has a phase-in period for withholding on certain types of payments, see Ch 13: Withholdable Payments.

Jurisdictions that have signed agreements:

Model 1 IGA – 28

Australia (4-28-2014)
Belgium (4-23-2014)
Canada (2-5-2014)
Cayman Islands (11-29-2013)
Costa Rica (11-26-2013)
Denmark (11-19-2012)
Estonia (4-11-2014)
Finland (3-5-2014)
France (11-14-2013)
Germany (5-31-2013)
Gibraltar (5-8-2014)
Guernsey (12-13-2013)
Hungary (2-4-2014)
Honduras (3-31-2014)
Ireland (1-23-2013)
Isle of Man (12-13-2013)
Italy (1-10-2014)
Jamaica (5-1-2014)
Jersey (12-13-2013)
Liechtenstein (5-19-2014) <— IGA officially signed, moved from list below
Luxembourg (3-28-2014)
Malta (12-16-2013)
Mauritius (12-27-2013)
Mexico (4-9-2014)
Netherlands (12-18-2013)
Norway (4-15-2013)
Spain (5-14-2013)
United Kingdom (9-12-2012)

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance and have consented to being included on this list (beginning on the date indicated in parenthesis):

Model 1 IGA – 33

Azerbaijan (5-16-2014)
Bahamas (4-17-2014)
Barbados (5-27-2014) <— new IGA agreed
Brazil (4-2-2014)
British Virgin Islands (4-2-2014)
Bulgaria (4-23-2014)
Colombia (4-23-2014)
Croatia (4-2-2014)
Curaçao (4-30-2014)
Czech Republic (4-2-2014)
Cyprus (4-22-2014)
India (4-11-2014)
Indonesia (5-4-2014)
Israel (4-28-2014)
Kosovo (4-2-2014)
Kuwait (5-1-2014)
Latvia (4-2-2014)
Lithuania (4-2-2014)
New Zealand (4-2-2014)
Panama (5-1-2014)
Peru (5-1-2014)
Poland (4-2-2014)
Portugal (4-2-2014)
Qatar (4-2-2014)
Romania (4-2-2014)
Singapore (5-5-2014)
Slovak Republic (4-11-2014)
Slovenia (4-2-2014)
South Africa (4-2-2014)
South Korea (4-2-2014)
Sweden (4-24-2014)
Turks and Caicos Islands (5-12-2014)
United Arab Emirates (5-23-2014) <— new IGA agreed

Model 2 IGA – 2

Armenia (5-8-2014)
Hong Kong (5-9-2014)

Practical Compliance Aspects of FATCA and GATCA

Posted in FATCA | Tagged: FATCA, IGA | 3 Comments »

3 Tax Facts for US Taxpayers Living Abroad or With Foreign Assets

Posted by William Byrnes on June 2, 2014

In Newswire 2014-52, IRS reminded US taxpayers living abroad of 3 Tax Facts concerning filing requirements.

1. Filing Requirements of a US taxpayer Living and / or Working in a Foreign Country?

The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. tax liability and a filing requirement in 2014.

The filing deadline for a tax return for a US taxpayer who lives or works outside the US (or serving in the military outside the U.S.) is Monday, June 16, 2014. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

2. Foreign Assets Reporting?

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

3. FBAR Reporting Also Required?

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map and the International Tax Topic Index to get answers.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

Posted in Compliance, FATCA, Taxation | Tagged: 8938, FATCA, FBAR, nonresident alien, NRA | 1 Comment »

William Byrnes (Texas A&M) tax & compliance articles

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Archive for June, 2014

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50% Penalty

Eligibility

Compliance Risk Determination

Other Considerations

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Which Income to Report?

Which Form to File?

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What are the tax advantages of owning exchange-traded funds (ETFs)?

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