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

Archive for August, 2014

FinCEN Proposes New Customer ID Rules

Posted by William Byrnes on August 29, 2014

International Financial Law Prof Blog – According to a Treasury press release and ThinkAdvisor, “The Treasury Department’s Financial Crimes Enforcement Network (FinCEN), recently issued proposed rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements — including anti-money laundering rules — for banks, brokers or dealers in securities, mutual funds, and futures commission merchants as well as introducing brokers in commodities.” … read on at International Financial Law Prof Blog

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Prof. Byrnes to Deliver Paper on Pioneering Distance Learning for Legal Education | Thomas Jefferson School of Law

Posted by William Byrnes on August 28, 2014

Prof. Byrnes to Deliver Paper on Pioneering Distance Learning for Legal Education | Thomas Jefferson School of Law.

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SEC Adopts Credit Rating Agency Reform Rules

Posted by William Byrnes on August 28, 2014

International Financial Law Prof Blog:

The Securities and Exchange Commission Wednesday, August 27 adopted new requirements for credit rating agencies to enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and increase credit rating agency accountability.  The new rules and amendments, which implement 14 rulemaking requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, apply to credit rating agencies registered with the Commission as nationally recognized statistical rating organizations (NRSROs). …. 

International Financial Law Prof Blog

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revised IRS procedure for verifying social security numbers

Posted by William Byrnes on August 28, 2014

IRS logoRevenue Procedure 2014-43 provides guidance to individual payees on verifying social security numbers.

This revenue procedure provides revised procedures for individual payees who are required under Treas. Reg. § 31.3406(d)-5(g)(5) to obtain validation of social security numbers (SSNs) from the Social Security Administration (SSA) to prevent or stop backup withholding under section 3406 of the Internal Revenue Code following receipt of a second backup withholding notice from a payor within a three-year period.

This revenue procedure sets forth revised procedures for an individual payee to obtain validation of the payee’s name and SSN from SSA on or after August 1, 2014.  Following receipt of a second B notice, a copy of a social security card, as described in section 4, is validation from the SSA of a name and SSN combination.

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White Paper – Alternative Methods of Teaching and the Effectiveness of Distance Learning for Legal Education

Posted by William Byrnes on August 26, 2014

Professor William Byrnes, Associate Dean for Graduate and Distance Education Programs at Thomas Jefferson School of Law, released remarks in the form of a white paper about teaching photodistance education methodologies called Alternative Methods of Teaching and The Effectiveness of Distance Learning For Legal Education.  The white paper makes the case for combining traditional classroom learning with online education because it is cost effective, accessible, flexible, and addresses the biggest criticism of legal education today, the lack of law school graduates who can think and practice law.  The white paper covers such topics as –

  • U.S. Department of Education’s Review of the Effectiveness of Distance Learning
  • Developing Learning Outcomes
  • Occupational Outcomes Framing Learning Outcomes
  • Information Acquisition
  • Information Delivery
  • Learning Communities
  • Learning Media
  • Learner Motivation
  • Knowledge Acquisition
  • Learning Tools

In his white paper, Professor Byrnes argues that a challenge for institutions and faculty for the pedagogical development of distance learning is to facilitate deep learning and understanding through the creation of learning materials and opportunities for various learning experiences.

in officeProfessor Byrnes explains, “The goal is to implement best practices in law schools across the country to the benefit of our esteemed institutions, our law students and the legal system at large.”  To this end, he is a primary driver of the invitation-only Work Group for Distance Learning in Legal Education that will finalize its Best Practice Report at its 10th development meeting (see https://www.eventbrite.com/e/working-group-for-distance-learning-in-legal-education-fall-2014-meeting-registration-12051364957).

White Paper: Byrnes, William H., Alternative Methods of Teaching and the Effectiveness of Distance Learning for Legal Education (August 27, 2014). Available at SSRN: http://ssrn.com/abstract=2487679

Posted in book, Courses | Tagged: , , , , , | 1 Comment »

HSBC hired 4,500 new compliance professionals (why aren’t law students preparing for AML careers?)

Posted by William Byrnes on August 26, 2014

See International Financial Law Prof Blog.

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Goldman Sachs’ $3.15 billion Settlement with FHFA

Posted by William Byrnes on August 25, 2014

International Financial Law Prof Blog.  … Under the terms of the settlement, Goldman Sachs will pay $3.15 billion in connection with releases and the purchase of securities that were the subject of statutory claims in the lawsuit FHFA v. Goldman Sachs & Co., et al., in the U.S. District Court of the Southern District of New York …

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7 Tax Facts for Vacation Home Rentals

Posted by William Byrnes on August 25, 2014

IRS logoIRS Summertime Tax Tip 2014-13 addressed the topic of a taxpayer renting to others, such as summer vacation rentals in San Diego.

The IRS stated that of a taxpayer rents a home to others, then usually the taxpayer must report the rental income on the tax return.  But the taxpayer may not have to report the income if the rental period is less than 15 days and the property is also the taxpayer’s home.

In most cases, a taxpayer can deduct the costs of renting a property.  However, the deduction may be limited if the property is also the taxpayer’s home.

The IRS provided 7 tax facts about renting out a vacation home.

  1. Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  2. Schedule E.  A taxpayer will report rental income and rental expenses on Schedule E, Supplemental Income and Loss.  The rental income may also be subject to Net Investment Income Tax.
  3. Used as a Home.  If the property is “used as a home,” then the rental expense deduction is limited.  This means that the deduction for rental expenses can not be more than the rental income received.  See Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  4. Divide Expenses.  If a taxpayer uses the property and also rents it to others, then special rules apply.  The taxpayer must divide the expenses between the rental use and the personal use.  To figure how to divide the costs, compare the number of days for each type of use with the total days of use.
  5. Personal Use.  Personal use may include use by the taxpayer’s family.  It may also include use by any other property owners or their family.  Use by anyone who pays less than a fair rental price is also personal use.
  6. Schedule A.  Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  7. Rented Less than 15 Days.  If the property is “used as a home” and rented out fewer than 15 days per year, then the taxpayer does not have to report the rental income.

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weekend financial fraud reading

Posted by William Byrnes on August 23, 2014

Former Associate Dean of MIT Sloan School and His Harvard MBA Son Agree to Plead Guilty in Hedge Fund Scam of over $140 of million

Gabriel Bitran, 69, of Newton, a former professor and associate dean of the Massachusetts Institute of Technology (“MIT”) Sloan School of Business, and his son Marco Bitran, 39, of Brookline, a Harvard Business School graduate and money manager, were charged with conspiracy to commit securities fraud, wire fraud and obstruction of justice in connection with their hedge fund businesses, GMB Capital Management and GMB Capital Partners. Both Gabriel and Marco Bitran have agreed to plead guilty to the charge.

PwC pays $25 Million fine, 2 year consulting suspension for hiding sanction and anti-money laundering violations of Tokyo Mitsubishi

PricewaterhouseCoopers (“PwC”) Regulatory Advisory Services will be suspended for 24 months from accepting consulting engagements at financial institutions regulated by the New York State Department of Financial Services (NYDFS); make a $25 million payment to the State of New York; and implement a series of reforms after improperly altering a report submitted to regulators regarding sanctions and anti-money laundering compliance at Bank of Tokyo Mitsubishi (BTMU).

How Did a 21 Year Old, FAU Student Ponzi $10 million From Investors?

Donald R. French was a 21 years old FAU student, living in Boca Raton in 2008 when he opened an LLC online “D3 Funds LP”. He moved to Rome, Italy but from 50 investors in Florida, Massachusetts, and Michigan, he…

Billionaire Found in Middle of Bribery Case Avoids U.S. Probe

Alcoa Inc., the biggest U.S. aluminum producer, pleaded guilty to foreign bribery charges brought by the U.S. Justice Department. Alcoa also settled claims by the Securities and Exchange Commission and agreed to pay a $384 million fine — the fifth-largest such penalty ever.

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FATCA lecture notes for Seminar B (W-8BEN intro, 2nd lecture)

Posted by William Byrnes on August 22, 2014

  1. We’ve covered a lot of ground, yet a long journey lies ahead…

Creative Digital Camera

Everyone will now have read Chapter 1 which is available for download  at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

I think it appropriate to begin this week with a quote by Senator Russell Long (of Louisiana) who was Chairman of the Finance Committee in 1969.  Senator Long, speaking of the Tax Reform Act of 1969 stated: “when the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’  It is now 585 pages  . . . . It takes complicated amendments to end complicated devices.”

Since the original 10 pages of the March 18, 2010 enactment of the Foreign Account Tax Compliance Act, which was as a Pay As You Go revenue raiser for the Hiring Incentives to Restore Employment Act, FATCA has consumed nearly 2,000 pages of regulations, corrections, notices, international agreement models and as of yesterday, 101 international agreements.

To cite some of the important regulatory milestones that will bring us current to July 10, after the HIRE Act was enacted in 2010, the 365 page Draft Regulations were released on Feb 8, 2012, but as Senator Long said “It takes complicated amendments to end complicated devices” the Final Regs released January 28, 2013 came in around 543 pages.

Over the next year, Notices and Corrections added up to another hundred pages, followed by the 565 page Coordinating Regs released Feb 20 of this year.  On top of these, add the FFI agreement that was released Dec 26, 2013 but updated just 2 weeks ago on June 24.

This past March and April we saw the release of the new W-8s, Form 8966, Form 1042-S, and finally on June 25 the instructions for the BEN-E.  Last, but not least, the IRS, much to its credit, managed to release the new QI agreement before the July 1 expiration of all the former QI agreements.

Last month withholding agents began the chapter 4 withholding of 30% on withholdable payments, such as interest earned on bank deposits, made to payees in 143 countries and their dependencies that do not have one of the 101 IGAs with the US as of today.

 While the blog airwaves and commentators have in general been critical of the complexity of FATCA, sophisticated tax compliance officers from the financial industry are actually complementing the US Treasury for having listened to our stakeholder comments and concerns.  The complexity within the FATCA regulations, in general, results from drafting exceptions and exemptions, for institutions and entities, from various diligence, reporting, and withholding obligations.  

  1. Trust but Verify… 

Brazil-Students-Feature-boxThe United States is a self-reporting and assessment system whereby each year 150 million taxpayers fill in their 1040 with their worldwide income.  It is reasonably estimated by various government sources that 10 million of these taxpayers have reporting obligations regarding either their foreign income and / or their foreign accounts.  Unfortunately, less than 10% of Americans with international income or asset exposure are compliant with at least filing the dreaded, but very simple, FBAR form that requires reporting of signatory authority over accounts if the collective balance exceeds $10,000.  Only approximately 800,000 FBARs were filed for 2012 for that group of potentially 10 million American taxpayers.  With so little FBAR reporting, it’s no wonder that Congress and the IRS suspect that hundreds of billions of American’s foreign income goes unreported on the 1040 each year.   Absent alternative information forms, the IRS does not have a scalable method to verify 1040 and select for audit the returns of potential tax evaders.

In the infamous words of Ronald Reagan, “Trust but Verify”, the US tax system is not just based upon self-reporting.  The United States Congress has deputized financial institutions, and some businesses, to be information collectors, and verification auditors.  We know this information collection as forms 1099, W8, W9, and the 1042-S.  And we know the verification standards, such as by example “actual knowledge” and, requirements for “due diligence”.  

  1. Bureau of Information Retrieval … 

Each year, tens of millions of these forms are transmitted to the IRS with information about US and foreign taxpayers.  Allow me briefly to introduce some salient metrics that have been collected by my research colleague, Haydon Perryman, who is Director of Compliance Solutions of Strevus”.

  1. We know that when QI was introduced only 20% of W8s were fit for purpose. We also know that 13 years after QI’s inception that only 35% of W8s are fit for purpose.
  2. We also know form interviews with large financial institutions that on average after a financial institution solicits a pre-existing customer for a new W8 it takes between 5 and 7 months for that W8 to be submitted, valid or otherwise.

When we apply these metrics to the customer base for whom we must reach out, – obtaining W8s or W9s (or their equivalent substitutes under an IGA), – validate those withholding certificates – and then we repeat this process in the 65% of the cases where the W8 submission was ‘invalid’, we can rapidly appreciate the size and scale of the challenge.

Moreover, the IRS estimates that 400,000 – 600,000 FFIs will register on its FATCA portal this portal, although my industry colleagues put the true figure around one million.  Now imagine every FFI registrant approaching its customers and counter-parties for withholding certificates and other documentation.  Industry estimates that there will be 900 million withholding certificates requiring validation for FATCA purposes.

  1. Analysis of GIIN Registrations 

teaching photoThe July 1st GIIN list of financial institutions registrations is instructive in that it is indicative of certain compliance patterns that have emerged.  Again, my colleague Haydon Perryman and myself have undertaken hours of in-depth research of the June and now the July GIIN registrations lists.

87,933 financial institutions and their branches registered from the 250 countries and their dependencies recognized by the IRS for FATCA purposes. Note that not ALL countries and dependencies are recognized by the IRS, such as Kosovo.  And some jurisdictions, which are not recognized by the State Department, such as the State of Palestine, are recognized by the IRS.

Of the total 87,000 registered FFIs, 83,000 representing almost 95% are based in the 101 countries and jurisdictions that as of yesterday have an IGA.  48,000 FFIs registered from Model I IGA jurisdictions whereas approximately 15,000 of the FFIs registered as Model 2 reporting FFIs and branches.  Note that these 15,000 Model 2 FFI registrations are impacted by the FFI Agreement changes of June 24, 2014.  Most of the 4,000 FFIs from the remaining 143 countries and jurisdictions on the GIIN list registered probably either as Participating FFIs or branches.

While the exact number is unknown, based on the July GIIN list, industry and foreign government feedback, it is reasonable to estimate that half a million firms, funds, and other entities, such as trusts, will need to register.  In its FATCA FAQs, the IRS has said that “At this time, the full FFI list is expected to be less than 500,000 records.”, thus implying that it would be close to half a million registrations.  Therefore we can reasonably infer that less than 20% of the global FFIs are currently registered for FATCA.  Moreover, all these non-registered FFIs in the 143 countries without an IGA must be treated as non-participating and withheld upon for FATCA by withholding agents.

Unfortunately, the compliance story is even worse when we consider how many of the 87,000 FFIs are members of an expanded affiliated group.  3,700 of the FFIs registered are parents of “expanded affiliated group” (“EAG”) that have registered the affiliated group members, which includes entities related by 50% and more ownership.  What this slide and our data informs us is that while the large global institutions from the G5 have registered, the vast majority of smaller FFIs have not.  Interestingly, Cayman Islands leads with 813 EAG parents, followed very far behind by the UK.

Of the 250 countries and jurisdictions with FFI registrations, almost 20% of the total registered FFIs are from the Cayman Islands firms, representing 14,207 registrations.  Our research of the Cayman registrations shows a significant number of investment funds among that total.

The United Kingdom almost 7,000 FFIs are less than 10% of the 75,000 UK FFIs requiring registration as estimated by the United Kingdom Revenue.  Note that the 75,000 figure was reduced from the UK government’s initial estimate of 300,000 after it reassessed self-certifying FFIs that are not required to registered, based upon the USA-UK IGA. 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.

NAFTA has thus far been a large disappointment for Treasury with only 2,500 FFIs registered from Canada and 410 from Mexico. However, Canada and the US already automatically exchange information about bank interest, and the US-Canada IGA removed the registration of trusts as FFIs, so it is expected that Canadian FFIs will have registered and be in full compliance by the end of the year.

Brazil leads the BRIC countries with 2,362 FFI registered, followed by Russia at 729, India at 321 and the world’s 2nd largest economy China only has 213. 

The European countries and financial centers have mixed registration results.  France (2,422), Germany (2,894), Netherlands (2,280) and Ireland (2,007), Switzerland (4,279), Luxembourg (4,061), Austria (2,978), Guernsey (2,395), Jersey (1,618), Isle of Man (312), Lichtenstein (239), and Gibraltar (96).

Caribbean – BVI (2,373), Bahamas (6,146), Panama (484), Bermuda (1,579). 

  1. GATCA

 FATCA is the most important development for a globalized model of international exchange of tax information that will be made on an automatic basis.  But its complexity and the high related costs of FATCA have been the source of important frictions and pressures at the highest level between the stakeholders concerned: the U.S. Treasury, the governments of all other countries, and the financial industry.

To briefly mention two frictions of local law that conflict with the FATCA regulations: firstly, many countries’ national data protection laws do not allow the transmittal of customer information without customer authorization, which is fundamental for FATCA to work, and secondly, some civil law countries do not allow a financial institution to unilaterally terminate certain customer relationships, which is required for recalcitrant account holders.

As a result of these difficulties, the U.S. Treasury issued the “Joint Statement from the United States, France, Germany, Italy, Spain and the United Kingdom regarding the intergovernmental approach to improving international tax compliance and implementing FATCA” known as the “G5 Joint Statement”. The Treasury issued this G5 Joint Statement on the same day of the release of the proposed FATCA regulations, February 8, 2012.

The G5 Joint Statement acknowledged the challenging character of implementation of certain FATCA regulations and resulted in the release on July 6, 2012 “Model Intergovernmental Agreement to Improve Tax Compliance and Implement FATCA”, referred to as an “IGA” model agreement, and specifically as “Model 1”. Basically, the model agreement allows FFIs in each of the jurisdictions to report U.S.-owned account information directly to their local tax authorities, using local reporting forms and systems, rather than the IRS, which in turn will automatically share that information with the IRS.

  1. Intergovernmental Agreements 

This Model 1 IGA allows FFIs of those countries to be considered “deemed compliant”, will avoid the 30 percent withholding and, significant in addressing a substantial industry concern, will not be required to impose “passthru withholding” on non-U.S. source payments they make to other FFIs.

This first model has two versions: reciprocal and non-reciprocal. The reciprocal version includes a policy commitment from the U.S. to pursue regulations and support legislation permitting the U.S. to pass information relating to U.S. accounts held by residents of FATCA partners to other FATCA partners. The U.K. was the first country to sign a reciprocal Model 1 FATCA agreement on September 12, 2012.  Mexico signed one shortly later on November 19, 2012 but the USA and Mexico reissued it on April 4, 2014 to take into account the regulatory and IGA modifications, and implementation extensions granted other countries.

The second model, known as Model 2, was originally released on November 15 of 2012 but has since been updated, most recently re-released June 6 of this year.  This second model provides a framework whereby FFIs register with the IRS and either are exempted from FATCA or agree to share FATCA required information directly with the IRS.  In turn, these FFIs are to be treated by withholding agents as complying with FATCA and will not be subject to 30 percent FATCA withholding on payments to them. In addition, these FFIs would not be required to impose “pass-thru withholding” on payments they make to other domestic registered or exempt FFIs or FFIs in jurisdictions that have entered into an IGA with the U.S.

The most important IGA advantage relevant for today is that a GIIN not required until Jan 1, 2015.  Other advantages include Reporting of Tax Information to the Home Country Revenue instead of IRS, Replacement of “Substantial U.S. Owner” with the standard of “Controlling Persons”, which is an FATF anti money laundering standard, No Closing of and withholding upon Recalcitrant accounts and that Retirement Accounts are Deemed Compliant FFIs or are Exempt beneficial owners.  And finally, most Favored Nation Clause that allows IGA partner countries to Cherry Pick from any advantages granted to another partner or through an amendment to the regulations, such as the 6 month extension granted to treat entity accounts as preexisting ones thus not subject to the stricter FATCA documentation standards.

TIEAs and information exchange articles of the double tax agreements are still relevant because Model 2 countries, by example, must agree to provide additional FATCA information to the IRS about recalcitrant accounts, based on tax information request by the normal channels, that the US IRS may mop up such information that has not been passed in the first instance directly by a financial institution. 

  1. Common Reporting Standards 

OCDE_10cm_4cOn February 13 of this year the OECD released the Standard for Automatic Exchange of Financial Account Information Common Reporting Standard, known by the two acronyms of CRS and GATCA for Globalized FATCA.

The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

Part I of the OECD report gives an overview of the standard whereas part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together form the “standard”.

As of last week, 66 countries and major financial centers committed to early implementation of this automatic exchange of information between their jurisdictions.  These early adopters includes all 34 OECD member countries, as well as countries such as the BRIC nations, Argentina, Colombia, Costa Rica, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa.  Thus, more than half the 121 Global Forum members have committed to early adoption of GATCA, with the remaining group expected to join by the end of the year after the publication of the detailed Commentary.

The OECD stated that it will deliver a detailed Commentary on GATCA, as well as technical solutions to implement the actual information exchanges, during the G20 finance ministers meeting in September 2014.

What are the main differences between the OECD’s CRS and the US’ FATCA

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

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

The CRS is similar to FATCA in its broad application across three dimensions:

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



(a) income from employment

(b) director’s fees

(c) life insurance products

(d) pensions

(e) ownership of and income from immovable property 

Clients in the 170 countries and their dependencies that the US does not have a tax treaty already suffer chapter 3 withholding.  So what is it in for them to comply with FATCA? 

Because Chapter 3 has important exemptions to its withholding, such as portfolio interest and interest on bank accounts that chapter 4 does not. FATCA’s 30% will hurt the most when it applies to the gross proceeds of a bond, that is, including its return of the underlying debt, because so much of the world’s financial system depends on US debt such as treasuries as the safe reserve. 

  1. W8-BEN 

book coverThat brings us to the forms wherein we will start the discussion about the simple W-8BEN.

The Form W-8BEN has been split into two forms.  The new 2014 Form W-8BEN is for use solely by foreign individuals, whereas the new Form W-8BEN-E is for use by entities for 2014 (revision date 2014) to provide US withholding agents.

Foreign individuals, such as non-resident aliens – that is NRAs, must use Form W-8BEN to document their foreign status and also to claim any applicable treaty benefits for chapter 3 purposes. A NRA (nonresident alien individual) is any individual who is not a citizen or resident alien of the United States.

The NRA should enter the country of nationality on line 2 of the form.  If the NRA is a dual national, enter the country where the NRA is both a national and a resident at the time of completing the W-8BEN.  If the NRA is not a resident in any country of nationality, then the NRA should type in the country where most recently resident.

However, if the individual is a dual national and one nationality is the United States, then the individual is NOT an NRA.  The US national is always a US taxpayer.  A US taxpayer must file a W-9 even if holding nationality in another jurisdiction.

Moreover, a foreign person who has a “green card” and not had it revoked or voluntarily turned it in, or a foreign person who meets the “substantial presence test” for the calendar year is a resident alien, that is, a US taxpayer.  Resident aliens must also submit a W-9.

However, an alien who is a bona fide resident of one of the five US territories, being Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa, is considered an NRA, and thus should fill out a W-8BEN, not the W-9.

The NRA must give the Form W-8BEN to the withholding agent if the NRA is the beneficial owner of an amount subject to withholding, — or if the NRA is an account holder of an FFI — then to the FFI to document his/her status as a nonresident alien.   Also, an NRA receiving payments from a payment settlement entity for credit card transactions and other third-party network transactions, such as paypal, must provide a Form W-8BEN.  Finally, to avoid backup withholding by a broker of securities, an NRA will need to provide a W-8BEN.

Important to note – a sole member of a “disregarded” entity is considered the beneficial owner of income received by the disregarded entity, and thus the sole member must provide a W-8BEN. The sole member should inform the withholding agent if the account is in the name of a disregarded entity. The sole member includes his or her own name in line 1, but must include the name and account number of the disregarded entity on line 7 where it states “reference number”.  However, if the disregarded entity is claiming treaty benefits as a hybrid entity, it must instead complete Form W-8BEN-E.

If the income or account is jointly owned by more than one person, the income or account can only be treated as owned by a foreign person if Forms W-8BEN or W-8BEN-E are provided by EVERY owner of the 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.

In general the W-8BEN will remain valid until December 31st of the 3rd year after the date of the signature unless there is a change of circumstances.  There are exceptions to the validity period that our last two speakers will bring up.

If any information on the Form W-8BEN becomes incorrect because of a change in circumstances, then the NRA must provide within 30 days of the change of circumstances the withholding agent, payer, or FFI with a new W-8BEN.   By example, if an NRA has a change of address to an address in the United States, then this change is a change in circumstances that requires contacting the withholding agent or FFI within 30 days.  Generally, a change of address within the same foreign country or to another foreign country is not a change in circumstances.   However, if Form W-8BEN is used to claim treaty benefits of a country based on a residence in that country and the NRA changes address to outside that country, then it is a change in circumstances requiring notification within 30 days to the withholding agent or FFI.

On line 2, the NRA must enter the country of citizenship. If the NRA is a dual citizen, then the NRA must enter the country where the NRA is both A citizen and A resident at the time of completing the W-8BEN.  If the NRA is not a resident in any country in which the NRA has citizenship, enter the country where the NRA was most recently a resident. 

Line 3 requires the NRA’s permanent resident address in the country where the NRA claims to be a resident for purposes of that country’s income tax. If the Form W-8BEN is to be used for claiming a reduced rate of withholding under an income tax treaty, then the NRA must determine permanent residency in the manner required by that tax treaty.  The NRA may not use the address of a financial institution, a post office box, or any of other type of mailing address.

If the NRA does not have a tax residence in any country, then his permanent residence is where the NRA normally resides.

If the country does not use street addresses, line 3 allows a descriptive address, such as “Manor House, Kensington Estate”.

Line 5 requires a taxpayer identification number, which is the US social security number (SSN), or if not eligible to receive a SSN which most NRA are not, then an individual taxpayer identification number (ITIN).  To claim certain treaty benefits, either line 5 must be completed with an SSN or ITIN, or line 6 must include a foreign tax identification number (foreign TIN).

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

The new, more uniform policy applies to any ITIN, regardless of when it was issued. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns.

Under the new policy, an ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.  Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.

A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

Line 6 of Form W-8BEN requires a foreign tax identifying number (foreign TIN) issued by a foreign jurisdiction of residence when an NRA documents him or herself with respect to a financial account held at a U.S. office of a financial institution.  However, if the foreign jurisdiction does not issue TINs or has not provided the NRA a TIN yet, then the NRA must enter a date of birth in line 8.

At this point let us turn to our client case studies… 

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International Financial Law Professor headlines of Aug 22

Posted by William Byrnes on August 22, 2014


Economic Financial Crimes Commission Recovers N5 Billion Oil Subsidy Fund

The Daily Times Nigeria reports, amazingly that an Oil Fraud is being prosecuted. “While underlining the importance the Commission places on transparency and corruption issues in the oil sector, Uwujaren noted that the Commission presently has a full fledged section…

Bank of America Pays $16.65 Billion for Financial Fraud – Total Exceeds $23 Billion

The DOJ has reached a $16.65 billion settlement with Bank of America Corporation – the largest civil settlement with a single entity in American history ­— to resolve federal and state claims against Bank of America and its former and current subsidiaries, including Countrywide Financial Corporation and Merrill Lynch. Total now over $23 billion.

Former Rabobank LIBOR Submitter Pleads Guilty in Scheme to Manipulate Yen LIBOR

The FBI in a press release discusses the guilty plea by Paul Robson, a citizen of the United Kingdom. According to the press release, “Paul Robson is the second employee at Rabobank, one of the world’s largest banks, to plead…

BOA’s Securities Fraud Settlement with SEC for shifting the risk for toxic waste losses to investors

The Securities and Exchange Commission today announced a settlement in which Bank of America admits that it failed to inform investors during the financial crisis about known uncertainties to future income from its exposure to repurchase claims on mortgage loans.

Credit Suisse Caught up in Espírito Santo Mess

According to numerous stories, it is reported that Credit Suisse helped sell billions of dollars of securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal’s Banco Espírito Santo SA. According to the Wall…

Too Little Bank Reform

In a recent commentary in the Independent, “Bank of England’s Governor, Mark Carney (in his capacity as chairman of the Financial Stability Board), the Senior Supervisor’s Group reported: ‘Firms’ progress toward consistent, timely and accurate reporting of top counterparty exposures…

Standard Chartered Bank Pays $300 Million Penalty For Newest AML Failures, Suspends Dollar Clearing For Hong Kong ‘High Risk’ Clients

Under the order, SCB will suspend dollar clearing through its New York Branch for high-risk retail business clients at its SCB Hong Kong subsidiary; exit high-risk client relationships within certain business lines at its branches in the United Arab Emirates; not accept new dollar-clearing clients or accounts across its operations without prior approval from DFS; pay a $300 million penalty; as well as take other remedial steps.

Is it OK to Pick Up Stock Tips at Alcoholics Anonymous?

McGee breached duties of trust and confidence that he owed to a PHL Y senior executive (the “Insider”) – with whom he had a long-term relationship through Alcoholics Anonymous (“AA”) — by misappropriating material nonpublic information about the merger negotiations from the Insider.

How One “Sack Of S**t” Mortgage-Backed Security Came To Define The Financial Crisis

The history of SACO 2006-8, as told through court documents dating back more than six years, provides a view into how the mortgage-backed security industry was built up and spectacularly collapsed. For JPMorgan, it has become the mortgage-backed security from hell.

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International Financial Law Blog headlines

Posted by William Byrnes on August 21, 2014


SEC Charges Golfing Buddy with Insider Trading Ahead of Bank Acquisition

O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities.

Barclays Bank adds to its new global financial crime unit

Joe Smith, Wells Fargo’s deputy money-laundering reporting officer and financial crime reporting officer, will join Barclays as a vice-president in October.

Is the UK elimination of criminal intent for criminal prosecution of tax non-compliance sound ? Is tax non-compliance equal with ‘Cruelty to Animals’ and ‘Illegal Guns’?

The Government has announced its intention to introduce a new strict liability criminal offence. This consultation seeks views on the design of this offence.


The UK Government has announced its intention to introduce a new strict liability criminal offence, similar to the crime of cruelty to animals.

Strict liability offences 

2.5 A strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting.

Box 1: Other strict liability offences 

There are several existing offences which can be construed to imply strict liability, including some carrying custodial sentences. These include, for example: …

Cruelty to animals, including the offences of causing unnecessary suffering while transporting an animal or holding it at a market; ….



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Standard Chartered Fined $300m For Lax Controls

Posted by William Byrnes on August 20, 2014

Standard Chartered Fined $300m For Lax Controls.

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International Financial Law Prof Blog breaks 20,000 views first month

Posted by William Byrnes on August 20, 2014

The International Financial Law Prof Blog, a member of Prof. Paul Caron’s Law Professor Blogs Network which is sponsored by Wolters Kluwer, is one month old!

And thanks to you, our reader, our posts and articles have attracted over 20,000 views.  

Stay informed with our daily headlines by SUBSCRIBING to the auto-email in the top menu “SUBSCRIBE”  

Warm regards William Byrnes, David Herzig, and Gary Heald

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today’s International Financial Law Prof Blog headlines

Posted by William Byrnes on August 18, 2014

2nd Rabobank Banker Pleads Guilty for Manipulating Yen Libor

A former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) Japanese Yen London InterBank Offered Rate (LIBOR) submitter pleaded guilty today for his role in a conspiracy to commit wire and bank fraud by manipulating Rabobank’s Yen LIBOR submissions to benefit trading positions.

Money, Guns, Gambling and Meth – meet the real life Break Bad Gustavo Fring – Zhenli Ye Gon

I stumbled across a money laundering Reuters story about Casinos while working on Lexis’s Anti Money Laundering & Asset Forfeiture Guide due tonight. Realized, I had found a real life Gustavo Fring. Cash3 Legitimate pharmeceutical CEO in Mexico on the one hand, alleged meth manufacturer and distributor on the other. Lost US$125 million gambling in Vegas over two years, had another US$207 million in small bills seized from his home with a cache of automatic weapons. So I dug into it and excerpted the below from various government documents. 

DOJ wants $9.4 million forfeiture of bonuses from SAC Capital’s convicted portfolio manager

Former SAC Capital Advisors LP portfolio manager Mathew Martoma, convicted of orchestrating the most lucrative insider trading scheme in U.S. history, should be ordered to forfeit $9.4 million and required to pay a fine, U.S. prosecutors said.

Whose Financing a Legislative Agenda? a research tool

The Sunlight Foundation is a nonpartisan nonprofit that advocates for open government globally and uses technology to make government more accountable to all. It has several databases that legislative researchers will find interesting. I point out three (with links) below:

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8 Tax Facts a Home Seller Should Know

Posted by William Byrnes on August 18, 2014

IRS logoIn its 8th tax tip of summer, the IRS revealed that if a taxpayer sells a home for a profit, the gain may not be taxable.  The IRS provided eight tax facts about selling a home in 2014.

1. A capital gain, or a part of it, on the sale of a home may not be taxable.  This rule may apply if the home is owned and used it as the main home for at least two out of the five years before the date of sale.  However, there are exceptions to the “ownership and use” rules. Some exceptions apply to persons with a disability. Some apply to certain members of the military and certain government and Peace Corps workers.

2. Up to $250,000 of gain will not be taxable for an individual, and $500,000 for married, filing a joint return.  The Obama Care Net Investment Income Tax will also not apply to the excluded gain.

3. If the gain is not taxable because it falls beneath the threshold, then the taxpayer may not be required to report the sale to the IRS on the 2014 tax return, filed in 2015.

4. However, a taxpayer must report the sale on the 2014 tax return if part or all of the gain cannot be excluded from tax, or if the taxpayer receives a Form 1099-S, Proceeds From Real Estate Transactions.  The additional Net Investment Income Tax may apply to the gain.

5. Generally, a taxpayer can only exclude the gain from the sale of a main home once every two years.

6.  If a taxpayer has more than one home, then the taxpayer may only exclude the gain on the sale of the main home, which is usually the home lived in most of the time.

7. If a taxpayer claimed the first-time homebuyer credit when purchasing the home, then special rules apply to the sale.

8. A loss on a home sale can not be deducted.

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daily article links

Posted by William Byrnes on August 16, 2014

  • One Million Uses of SARs/CTRs via FINCEN Query in First Six Months of Year

    In the first six months of 2014 alone, over 350 unique agencies, representing a broad cross section of federal, state, and local law enforcement and regulators operating nationwide, accessed BSA reporting via FinCEN Query. Thousands of agents, analysts, and investigative personnel from each of these agencies have conducted in excess of 1 million queries against the database during that period.
  • FinCEN: Some Banks Banking Marijuana Dealers

    As we reported earlier, there has been new guidance by FinCEN on banking marijuana dealers in legal states. In an article in the Denver Post, it is reported that “[m]ore than 100 banks nationally say they are working with legal…

  • Petroleo Brasileiro in a $4.4 Billion Money Laundering Probe

    Bloomberg reports that a $4.4 billion money-laundering probe linked to state-run Petroleo Brasileiro SA is spreading to financial institutions as prosecutors investigate whether they met compliance requirements. Court documents cite units of banks including New York-based Citigroup Inc., Madrid-based Banco…
  • Jamie Dimon’s $13 Billion Secret

    In a recent article in The Nation, “Dimon, the chairman and chief executive of the formidable JPMorgan Chase & Company, was telling anyone who would listen that it was unfair and unjust for federal and state prosecutors to blame him…
  • Behind Collapse of Portugal’s Espirito Santo Empire

    The Wall Street Journal reports on the Espirito Santo collapse. “[T]he heart of the affair lies a small Swiss financial company now called Eurofin Holding SA, which was set up 15 years ago largely to handle financial transactions for the…
  • Consumer Financial Protection Bureau Issues Warning on Bitcoin

    The Consumer Financial Protection Bureau (CFPB) is now warning consumers of the risks of using virtual currency. “The Bureau’s Consumer Advisory notes that there are certain “associated risks” of using virtual currency – including hackers, costs, and scams – and…
  • Canadian Banker Guilty of Investment Fraud

    The British Columbia Securities Commission has convicted Victoria-area financial adviser David Michael Michaels of perpetrating a massive fraud that cost hundreds of investors a total of $65 million. According to CBC news, “[the commission] found Michaels guilty of improperly advising…

Posted in Uncategorized | 1 Comment »

Legal framework for FATCA in the Russian Federation

Posted by William Byrnes on August 15, 2014

Legal framework for FATCA in the Russian Federation.

Posted in FATCA | Tagged: , | 1 Comment »

Distance Education Workgroup September 18 – 20 Workshop and Best Practices Finalization

Posted by William Byrnes on August 11, 2014

Distance Education Workgroup September 18 – 20 Workshop and Best Practices Finalization

The Distance Education Work Group will meet at William Mitchell September 18 – 20 to complete a four year task consisting on hundreds of hours and input by more than 50 law schools from all tiers, and law publishers, of the Recommended Best Practices for Legal Education Leveraging Distance Learning Technologies.  There will as year before some show and tell by law professors of newest legal education integrated technologies being leveraged for courses, some social time to build relationships across schools, and … completion of the Best Practices Recommendations.

The Work Group has been meeting thrice annually, AALS plus a Fall and Spring report drafting and discussion workshop, supplemented by best practice subgroups’ online discussions.  About half the law schools have attended through a professor or Dean / Associate Dean, and approximately 50 from all tiers have provided continuous input for the drafting process.

Register to attend the workshop (there is no cost) at Event Brite: https://www.eventbrite.com/e/working-group-for-distance-learning-in-legal-education-fall-2014-meeting-registration-12051364957 or contact William Byrnes (williambyrnes@gmail.com)

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5 Tax Tips for New Business

Posted by William Byrnes on August 11, 2014

IRS logoIn its summer time Tax Tips 9-2014, the IRS provided 5 tax tips to taxpayers who start a new business during 2014.

1. Business Structure.  The IRS stated that taxpayers should choose the business type for the new business. Some common types of entities include sole proprietorship, partnership, S corporation, Limited Liability Company (LLC) and C corporation (normally just referred to as a ‘corporation’).  The type of business chosen will determine the IRS form(s) that must be used to annually report information and to determine tax owing to the IRS.

2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The type of taxes a business pays usually depends on which type of business the taxpayer chose to set up.

3. Employer Identification Number.  A taxpayer may need to get an EIN for federal tax purposes in order to file the tax form necessary for the business type.

4. Accounting Method.  An accounting method is a set of rules that determine when to report income and expenses. A business must use a consistent method. The two that are most common are the cash method and the accrual method. Under the cash method, income is reported in the year received and expenses are deducted in the year paid.  Under the accrual method, income is reported in the year earn, regardless of when payment was actually made, and expenses are deducted in the year incur, regardless of when paid.

5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees.  A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. Beginning in 2014, the maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the Employer Shared Responsibility provision.

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What Are the IRS Changes in the Newly Released Withholding Agreements for Foreign Trusts and Partnerships

Posted by William Byrnes on August 8, 2014

Revenue Procedure 2014-47 updates the Withholding Foreign Partnership (WP) and Withholding Foreign Trust (WT) agreements applicable to foreign partnerships and trusts that wishbook cover
to enter into a WP or WT withholding agreement with the IRS under ­§§1.1441-5(c)(2)(ii) and (e)(5)(iv).

Under Chapters 3 and 4, Application Procedures and Overview of Requirements for –

  • Withholding Foreign Partnership or
  • Withholding Foreign Trust Status

The procedure also contains the new –

  • Final Withholding Foreign Partnership Agreement
  • Final Withholding Foreign Trust Agreement

download for free –> LexisNexis® Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA)

Reporting Forms?

If a foreign partnership has U.S. partners, the foreign partnership is generally required to file Form 1065 with a Schedule K-1 to report each U.S. partner.

If a foreign trust is a grantor trust with U.S. owners, the foreign trust is required to file Form 3520-A, Annual Information Return of a Foreign Trust with a U.S. Owner, and to provide statements to a U.S. owner, as well as each U.S. beneficiary who is not an owner and receives a distribution.

What Entities Are Eligible to Execute a WP or WT Agreement?

The WP agreement and WT agreement may be entered into by a foreign partnership and a foreign trust.

With respect to an FFI, the WP agreement and WT agreement may only be entered into by an FFI that agrees to satisfy the requirements and obligations of

1. a participating FFI (including a reporting Model 2 FFI),

2. a registered deemed-compliant FFI (including a reporting Model 1 FFI and a nonreporting Model 2 FFI treated as registered deemed-compliant), or

3. a registered deemed-compliant Model 1 IGA FFI (as defined in section 2 of the WP agreement or WT agreement).

An FFI that is a certified deemed-compliant FFI (including a nonreporting IGA FFI may enter into a WP agreement or WT agreement if the FFI meets and agrees to assume the obligations of, and to be treated as, a participating FFI (including a reporting Model 2 FFI), a registered deemed-compliant FFI (including a reporting Model 1 FFI or a nonreporting Model 2 FFI treated as registered deemed-compliant), or a registered deemed-compliant Model 1 IGA FFI.

An NFFE or an FFI that is a retirement fund (as defined in section 2 of the WP agreement or WT agreement) may also apply to enter into a WP agreement or WT agreement.

What Is the 2014 Effective Date of Execution of the Agreement?

  1. An entity (other than a retirement fund or an NFFE that is not a sponsoring entity) that applies for WP or WT status before August 31, 2014 and is approved will have a WP agreement or WT agreement with an effective date of June 30, 2014, provided that it obtains a GIIN, if it has not already done so, within 90 days of such approval.
  2. An entity (other than a retirement fund or an NFFE that is not a sponsoring entity) that applies after August 31, 2014 will have a WP agreement or WT agreement with an effective date of the date it is issued a WP-EIN or WT-EIN, if its application is approved and provided that it obtains a GIIN, if it has not already done so, within 90 days of such approval.
  3. A new WP or WT applicant that is a retirement fund or an NFFE that is not a sponsoring entity will have a WP agreement or WT agreement with an effective date of the date it is issued a WP-EIN or WT-EIN, if its application is approved.

What Is the Effective Date After 2014?

For calendar years after 2014, applications for WP or WT status received on or before March 31 of the calendar year, if approved, will be effective January 1 of that calendar year. Applications for WP or WT status received on or after April 1, if approved, will be effective January 1 of the following calendar year and the entity must be in compliance with the WP Agreement beginning January 1.

Withholding Requirements?

Chapter 4: FATCA

Section 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an FFI, unless the FFI agrees to and complies with the terms of an FFI agreement to satisfy the obligations specified for a participating FFI, is deemed to meet these requirements of a deemed-compliant FFI, or is treated as an exempt beneficial owner.

Section 1472(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an NFFE unless such entity provides a certification that it does not have any substantial U.S. owners, provides information regarding its substantial U.S. owners, or an exception to these requirements otherwise applies.

A participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (other than a reporting Model 1 FFI or registered deemed-compliant Model 1 IGA FFI) will
satisfy its requirement to withhold under sections 1471(a) and 1472(a) with respect to account holders of the FFI that are entities by withholding on withholdable payments made to
nonparticipating FFIs and recalcitrant account holders under the FFI agreement, or an applicable Model 2 IGA.  See the FFI agreement, §1.1471-5(f), and the applicable Model 2 IGA for the withholding requirements that apply to withholdable payments made to account holders of the FFI that are individuals treated as recalcitrant account holders.

A reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI will satisfy its requirement to withhold under section 1471(a) with respect to its account holders by withholding on withholdable payments made to nonparticipating FFIs to the extent required under the applicable Model 1 IGA. A withholding agent (including a participating FFI or registered deemed-compliant FFI) that is required to withhold on a withholdable payment must report the payment on Form 1042- S, Foreign Person’s U.S. Source Income Subject to Withholding.

A participating FFI (including a reporting Model 2 FFI) and certain registered deemed-compliant FFIs must, for a transitional period, report certain information about accounts it maintains that are held by nonparticipating FFIs. A withholding agent (including an FFI with respect to payments made to an NFFE that were not already reported with respect to a U.S. account or U.S. reportable account (as defined under the applicable Model 1 or Model 2 IGA) is also required to report withholdable payments made to an NFFE (other than an excepted NFFE) with substantial U.S. owners on Form 8966, FATCA Report, even though no withholding is required.

Chapter 3

A withholding agent is required to deduct and withhold a tax equal to 30 percent on any payment of U.S. source fixed or determinable annual or periodical (FDAP) income that is an amount subject to withholding made to a foreign person. A lower rate of withholding may apply under the Code, the regulations, or an income tax treaty. Generally, a withholding agent must also report the payments on Forms 1042-S, regardless of whether withholding is required.

Coordination of Withholding and Reporting Requirements under Chapters 3 and 4.

With respect to a payment that is subject to withholding under chapter 4, a withholding agent may credit any tax withheld under chapter 4 against its liability for any tax due with respect to the payment under chapter 3.  A withholding agent may use a single Form 1042-S to report information required under both chapters 3 and 4 with respect to a withholdable payment of U.S. source FDAP income subject to withholding under chapter 4 and for which a credit against the beneficial owner’s chapter 3 liability, if any, may be claimed.

Thus, a withholding agent that reports on Form 1042-S a withholdable payment that has been withheld upon under chapter 4 may provide certain information about the beneficial owner of the payment for purposes of chapter 3 on the same Form 1042-S.  With respect to a withholdable payment of U.S. source FDAP income that is not subject to withholding under chapter 4 and that is an amount subject to withholding (or reporting) under chapter 3, a withholding agent is also required to report the applicable chapter 4 exemption code in addition to the other information required to be reported on Form 1042-S.

What Are the Changes to the WP Agreement and the WT Agreement?

The revenue procedure revises and updates the WP and WT agreements to coordinate with the withholding and reporting requirements of chapter 4, and based on the IRS’ experience in dealing with these entities since the WP and WT agreements were first published in 2003.

Additionally, because a WP or WT will be required to assume primary withholding responsibility for chapter 4 purposes, the revised WP agreement and WT agreement expand the scope of payments for which an entity can act as a WP or WT to reportable amounts (as defined in section 2 of the WP or WT agreement, which includes withholdable payments). Thus, a WP or WT need not provide its withholding agent with a nonqualified intermediary withholding certificate and withholding statement for reportable amounts not subject to chapter 3 withholding that are allocable to partners, beneficiaries, or owners that are U.S. non-exempt recipients. A WP or WT will be required to report partners, beneficiaries, or owners that are U.S. non-exempt recipients on Form 8966, Schedule K-1, or Form 3520-A to the extent required under its FATCA requirements or the WP agreement or WT agreement.

Documentation Requirements.

The existing WP agreement and WT agreement require a WP or WT to document its partners, beneficiaries or owners solely with Forms W-8 and W-9 and do not permit reliance on the presumption rules of chapters 3 or 61. The revised WP agreement and WT agreement also prohibit reliance on the presumption rules with respect to a WP or WT’s direct partners, beneficiaries, or owners and retain an automatic termination provision for a WP or WT’s failure to obtain documentation for a direct partner, beneficiary, or owner.

The revised WP agreement and WT agreement provide for the use of documentary evidence, in lieu of a Forms W-8 or Form W-9, for direct partners, beneficiaries, or owners that is obtained by a WP or WT that is an FFI and that is subject to the “know-your-customer” practices and procedures of a jurisdiction that the IRS has approved.   A list of jurisdictions for which the IRS has received know-your-customer information and for which the know-yourcustomer rules are acceptable is available at: http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules.

The rules permitting the use of documentary evidence do not apply to an NFFE acting as a WP or WT, which is required to obtain Forms W-8 and W-9 to document the chapter 3 status and, when required, the chapter 4 status of its partners, beneficiaries, or owners.

Agency Option, Joint Account Option, and Indirect Partners.

The existing WP agreement and WT agreement do not allow a WP or WT to act as a WP or WT for its indirect partners, beneficiaries, or owners, except in two specific situations describe section 9 of the WP agreement or WT agreement (agency and joint account arrangements), both of which require a written agreement between the WP or WT and another foreign partnership or foreign trust.

Notwithstanding the restriction described above, the existing WP agreement and WT agreement were modified by rider in certain cases to permit a WP or WT to act as such for its indirect partners, beneficiaries, or owners, but the rider required specific payee reporting by the WP or WT with respect to these partners, beneficiaries, or owners.

The WP agreement and WT agreement are revised to provide that a WP or WT may act as a WP or WT with respect to direct and indirect partners, beneficiaries, or owners of a direct partner that is a passthrough partner (as defined in section 2 of the WP or WT agreement), provided that such partner, beneficiary, or owner is not a U.S. non-exempt recipient (unless such U.S. non-exempt recipient is included in the passthrough partner’s chapter 4 withholding rate pool of U.S. payees or recalcitrant account holders) in which case the WP or WT may also assume the withholding and Form 1042-S reporting requirements for these indirect partners.

Compliance Procedures.

The existing WP agreement and WT agreement require periodic audits by an external auditor in certain circumstances, including when a WP or WT made a pooled reporting election. The revised WP agreement and WT agreement replace the external audit requirement with an internal compliance program.

Modified Form 1065 Filing Requirement.

Under the existing WP agreement, unless modified by a rider, a WP is required to file Form 1065 and Schedules K-1 in accordance with the requirements of §1.6031(a)-1 and the instructions to the form.The revised WP agreement, incorporates the modified filing obligations under §1.6031(a)-1(b)(3) with certain revisions to permit a WP that meets the conditions specified in section 6.03(B) of the WP agreement, including that the WP would not otherwise be required to report a specifically allocated item to any partner on Schedule K-1, to either not file a partnership return or not file Schedules K-1 for certain foreign partners dependent on whether the WP has any direct or indirect U.S. partners.

SECTION 4. Withholding Foreign Partnership Agreement


SECTION 5. Withholding Foreign Trust Agreement



book cover


download for free –> LexisNexis® Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA)

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New FATCA FAQ – Application of the Preexisting Obligation Election to Intermediaries and Flow-through Entities

Posted by William Byrnes on August 8, 2014

FATCA book coverQuestion: Notice 2014-33, 2014-21 I.R.B. 1033, provides that a withholding agent or FFI may treat an obligation as a preexisting obligation if the obligation (i) is issued, opened, or executed on or after July 1, 2014, and before January 1, 2015, and (ii) is held by an entity.  How does this provision of Notice 2014-33 apply when the recipient of a payment made under the obligation is a flow-through entity or intermediary?

Answer: A withholding agent may treat an obligation held by an entity (including an entity acting as an intermediary with respect to the obligation or a flow-through entity) as a preexisting obligation to the extent permitted in Notice 2014-33.  Therefore, an obligation held by an intermediary or flow-through entity is treated as a preexisting obligation if it is issued, opened, or executed before January 1, 2015.  In such a case, the withholding agent may rely on a pre-FATCA Form W-8 to document the holder of the obligation throughout 2014.  If the flow-through entity or intermediary provides the withholding agent with a withholding statement allocating a portion of a payment to a chapter 4 withholding pool of recalcitrant account holders or NPFFIs (or payee-specific information for such persons), then the withholding agent is required to apply chapter 4 withholding to the portion of the payment allocated to each such pool of payees (or each such payee), even though it is not yet required to document the chapter 4 status of the flow-through entity or intermediary.  However, a withholding agent must determine the chapter 4 status of a flow-through entity or intermediary as a PFFI or RDCFFI when provided with a withholding statement allocating a portion of a payment to a chapter 4 withholding rate pool of U.S. payees that the withholding agent reports on Form 1042-S as made to the pool rather than requiring payee-specific documentation for each payee in the pool or withholding and reporting in accordance with the applicable presumption rules.

If the withholding agent receives documentation from a flow-through entity with respect to an interest holder in the entity or from an intermediary with respect to its account holder and confirms (in writing) that the intermediary or flow-through entity treats the obligation as a preexisting obligation (including under Notice 2014-33, if applicable), the withholding agent may treat the obligation as a preexisting obligation provided that the withholding agent does not have documentation showing the interest holder or account holder to be an NPFFI.  The preceding sentence would apply, for example, to documentation provided with respect to a passive NFFE that is an account holder in an intermediary and that does not provide the information or certification described in Treas. Reg. § 1.1471-3(d)(12)(iii) with respect to its owners.

FATCA – FAQsGeneral Compliance, See Q7

download free  –> the 58 page Lexis Guide to FATCA Compliance, Chapter 1.

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Online Legal Education – Developing a Program or Course

Posted by William Byrnes on August 8, 2014

A Review of the Development of an Internet Delivered LL.M Program in the United States

The article comprises four sections. Part 1 addresses the economics reasons for, and logistics considerations of, the Internet-delivered Program. Part 2 reviews the pedagogical in officeapproach to legal education employed in the United States, criticisms thereof, and finally examines an emerging pedagogical trend in the United Kingdom. Part 3 reviews the teaching tools employed in the Program, and Part 4 reviews the practical aspects of developing the Program and obtaining American Bar Association (ABA) acquiescence, and reviews the Internet-delivered law courses that came before it. Finally, the article concludes with some personal observations.

The Decision Process …

Before making the decision to offer an Internet delivered Masters of Law program, integration of the Internet with legal education must be a matter of strategic thinking by the Faculty and Administration. A law school should consider several issues in its decision to pursue integration between legal education and the Internet. From a pedagogical perspective (addressed in Part 2 below), a law school’s faculty may determine a need to provide a complementary methodology for its legal teaching methods. Collaterally, the law school may want to stay in the academic and technology forefront relative to competitor law schools. The law school may also want to maintain or increase the student body size beyond the law school’s geographical boundary.

teaching photoReasons for this cause may be financial in light of local competition or a decrease in the local student market. Alternatively, it may be pedagogical, i.e; to increase student diversity, including the intake of foreign students. The law school may need to expand, for niche subjects, a class or program’s size beyond the law school’s geographical boundary for reasons of the course or program’s financial viability or student diversity. The law school should also consider whether law school’s mission may require providing legal education to geographical areas without law schools or to persons without access to local legal education, for example, economically disadvantaged persons.

After deciding whether to pursue Internet delivered legal education, the institution must then address its position regarding the pedagogy of legal education via the Internet.  The faculty discussion will likely produce heated debate between the monastic school traditionalists and the technological pioneers. Finally, the institution must address the issue of potential Internet integration while maintaining compliance with the: … read the 47 page at SSRN

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Using IRS income stats for where to locate your financial planning firm

Posted by William Byrnes on August 7, 2014

IRS logoCombing through the IRS’ income tax data by county and by zipcode can provide valuable insight for, by example, where to locate a business that depends on foot traffic, where to live (for a well funded local public school) and where to direct marketing efforts for financial planning and wealth management.

Take for instance California.  Some counties have substantially more tax filers in the category above $200,000 income, than others.  The entire state has 802,100 tax filers reporting $200,000 and greater income, 83% being married couples (665,110).   That’s almost twice New York State’s with just 413,720 (of course, to understand New York City, I would need to add in the metropolitan stats from the tri-state Connecticut and New Jersey suburbs of the City).  However, Texas beat out New York at 433,150 high earner returns, whereas Florida only had 278,560.

Read my analysis by country and metropolitan area in my International Finance Professor Blog article.

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Are you paying too much or too little tax?

Posted by William Byrnes on August 7, 2014

IRS logoIn Summer Tax Tip 10-2014, the IRS disclosed that that many taxpayers will discover that they either get a larger refund or owe more tax than they expected next April 15, 2015.  But, the IRS stated, this type of tax surprise is controllable by the taxpayer.

One way to prevent owing more tax next April 15, plus interest and any penalty, or to avoid having too much tax withheld, is to adjust the amount of tax withheld from salary.

Another way to prevent interest and penalties on April 15th is to change the amount of estimated tax paid during the year.

Factors the IRS wants taxpayers to consider during the summer include:

•    New Job.   A taxpayer must fill out and submit Form W-4, Employee’s Withholding Allowance Certificate in order to begin new employment.  The employer will use the information provided by the taxpayer on this form to calculate the amount of federal income tax to withhold from the paycheck.

•    Estimated Tax.  A taxpayer may need to pay estimated tax directly to the IRS during 2014 BEFORE filing the April 15 tax return in 2015.  If a taxpayer earns income without withholding, such as self-employment, interest, dividends or rent, then it is likely that the taxpayer owes estimated tax.  For the year 2014, tax may be due also on June 16, 2014, on Sept. 15 in 2014, on Jan. 15, 2015, and of course, also on Wednesday, April 15, 2015.  Read more about estimated tax here.

•    Life Event Change.  Married?  New Child?  New House?  The Form W-4 or Estimated Tax calculation needs to be updated to reflect a marriage, a child, or the purchase of a new home.

•    Changes in Circumstances.  A taxpayer that receives advance payment of the Obama Care premium tax credit in 2014 must report changes in circumstances, such as changes in income or family size, to the Health Insurance Marketplace where the medical insurance was bought for the year.  Also, a taxpayer must notify the Marketplace if moving away from the geographic area covered by the Marketplace plan.  Read more here.



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Reinventing the Legal Industry: Airbnb Hosts San Francisco LegalTech Startup Weekend

Posted by William Byrnes on August 7, 2014

First legal vertical Startup Weekend to disrupt legal industry by creating actionable solutions to intractable problems

San Francisco, Calif – August 15, 2014 – Registration is ongoing for the first legal technology Startup eventvertical Startup Weekend, set to take place from August 15-17 at Airbnb HQ in San Francisco. The LegalTech Startup Weekend organizing team invites everyone passionate about law, design, policy, data analytics, information architecture and building elegant solutions to join this weekend of innovation.

Why legal technology?

This potential for meaningful impact – and profit – is also attracting investors to the legal tech space, with investments leaping to $458 million from $66 million in 2012. The average valuation of legal tech companies currently stands at $4.2 million, and analysts expect continued exponential growth.

The intersection of law and technology presents unique challenges and exciting opportunities for growth and creativity for developers, designers, and legal industry insiders. Recent years have seen a surge of answers to law’s need for innovation: e-discovery tools, contract generation apps, law practice management SaaS, virtual firms, and websites are beginning to radically change the way lawyers research, consult and provide legal services. A wide range of possibilities remain for new startups to join companies like LegalZoom and Clio in integrating tech into solutions for consumers, attorneys, businesses, and the government.

Sign up on Eventbrite & check us out on Twitter and Facebook.  For more information, email the organizing team at legalsf@startupweekend.org.

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PwC formatted versions of NRA withholding (IRC Chapter 3) and FATCA (IRC Chapter 4) regulations: PwC #GATCA

Posted by William Byrnes on August 6, 2014

PwC formatted versions of NRA withholding (IRC Chapter 3) and FATCA (IRC Chapter 4) regulations: PwC #GATCA.

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myRA: Making Retirement Planning Work Your Small Business

Posted by William Byrnes on August 6, 2014

SBA logo

SBA Webinar registration

This free webinar will focus on “myRA” (“My Retirement Account”), a new retirement savings account for individuals looking for a simple, safe, and affordable way to start saving.  Savers will be able to open an account for as little as $25 and contribute $5 or more every payday.  myRA balances will never go down, and there will be no fees. Initially, myRA will be made available through employers and the investment held in the account will be backed by the U.S. Treasury.

  • Date:Tue, Aug 12, 2014
  • Time:01:00 PM EDT
  • Duration:1 hour
  • Host(s):United States Treasury Department, Small Business Administration
  • Presenter: Cynthia Egan – Senior Advisor, Office of Domestic Finance, U.S. Department of the Treasury

For businesses, making myRA available to employees is straight-forward.  Treasury will handle account set-up and maintenance and will provide informational materials for business owners to share with their employees.  There is no employer-match or contribution.  In fact, all that interested employers have to do is to make Treasury-provided program materials available to their employees and set-up ongoing payroll direct deposits into myRA for interested employees.  myRA is intended for employees who do not have access to an employer-sponsored plan or who are not eligible for their employer’s plan.  myRA is not intended to replace current employer-sponsored retirement plan offerings.

Topics being discussed include:

  • Overview of myRA
  • Benefits of the program
  • Steps for employer adoption

A question and answer period will follow.

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IRS Posts New and updated FATCA FAQs

Posted by William Byrnes on August 5, 2014

New and updated FATCA Registration System and FFI List FAQs have been posted to the FATCA Website.

  • What is the maximum number of points of contact allowed on the Registration? Updated: 8-1-2014
  • What is the maximum number of points of contact allowed on the Registration? Updated: 8-1-2014
  • What information will be in the notification e-mail the RO receives? Updated: 8-1-2014
  • Why is the RO not receiving FATCA notification emails regarding the FI’s status and account updates? Updated: 8-1-2014

book cover

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

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

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Germany Brings FATCA Law Into Force #GATCA

Posted by William Byrnes on August 5, 2014

Germany Brings FATCA Law Into Force #GATCA.

See in German: http://www.bundesrat.de/SharedDocs/drucksachen/2014/0201-0300/234-14.pdf?__blob=publicationFile&v=1

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Monday morning insurance and finance headline

Posted by William Byrnes on August 4, 2014

everything you need to know in 2 minutes

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FINCEN Issues New Due Diligence for Beneficial Owners of US Accounts to Provide FATCA Reciprocity to Foreign Governments

Posted by William Byrnes on August 4, 2014

FBARThe U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to amend existing Bank Secrecy Act (BSA) regulations to help prevent the use of anonymous companies to engage in or launder the proceeds of illegal activity in the U.S. financial sector.  See Proposed Rules and New Beneficial Ownership Form (Appendix A) here.

The proposed rule would clarify and strengthen customer due diligence obligations of banks and other financial institutions (including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities).

The proposed amendments would add a new requirement that these entities know and verify the identities of the real people (also known as beneficial owners) who own, control, and profit from the companies they service to facilitate reporting and investigations in support of tax compliance, and advancing international commitments made to foreign counterparts in connection with the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).

FATCA’s USA Reciprocity to Report Foreign Nationals Financial Information to Foreign Governments

The United States has collaborated with foreign governments to enter into intergovernmental agreements that facilitate the effective and efficient implementation of these requirements. Pursuant to many of these agreements, the United States has committed to pursuing reciprocity with respect to collecting and reporting to the authorities of the FATCA partner information on the U.S. accounts of residents of the FATCA partner.  A general requirement for U.S. financial institutions to obtain beneficial ownership information for AML purposes advances this commitment, and puts the United States in a better position to work with foreign governments to combat offshore tax evasion and other financial crimes.

Required Due Diligence by US Financial Institutions

The rulemaking clarifies that customer due diligence includes four core elements:

  1. identifying and verifying the identity of customers;
  2. identifying and verifying the beneficial owners of legal entity customers;
  3. understanding the nature and purpose of customer relationships; and
  4. conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.

The proposed requirement to identify and verify the identity of beneficial owners is addressed through the proposal of a new requirement for covered financial institutions to collect beneficial ownership in a standardized format.

Those financial institutions will have to identify and verify any individual who owns 25 percent of more of a legal entity, and an individual who controls the legal entity.

Determining Beneficial Ownership

The second element of CDD requires financial institutions to identify and verify the beneficial owners of legal entity customers.  FinCEN proposes a new requirement that financial institutions identify the natural persons who are beneficial owners of legal entity customers, subject to certain exemptions.

The definition of “beneficial owner” proposed herein requires that the person identified as a beneficial owner be a natural person (as opposed to another legal entity). A financial institution must satisfy this requirement by obtaining at the time a new account is opened a standard certification form (Appendix A of Proposed Rules) directly from the individual opening the new account on behalf of the legal entity customer.

Financial institutions would be required to verify the identity of beneficial owners consistent with their existing CIP practices.  However, FinCEN is not proposing to require that financial institutions verify that the natural persons identified on the form are in fact the beneficial owners. In other words, the requirement focuses on verifying the identity of the beneficial owners, but does not require the verification of their status as beneficial owners. This proposed requirement states minimum standards.

In order to identify the beneficial owner, a covered financial institution must obtain a certification from the individual opening the account on behalf of the legal entity customer (at the time of account opening) in the form of Appendix A.  The form requires the individual opening the account on behalf of the legal entity customer to identify the beneficial owner(s) of the legal entity customer by providing the beneficial owner’s

  • name,
  • date of birth,
  • address and
  • social security number (for U.S. persons).

This information is consistent with the information required under the CIP rules for identifying customers that are natural persons. The form also requires the individual opening the account on behalf of the legal entity customer to certify, to the best of his or her knowledge, that the information provided on the form is complete and correct.  Obtaining a signed and completed form from the individual opening the account on behalf of the legal entity customer shall satisfy the requirement to identify the beneficial owners.

This section also requires financial institutions to verify the identity of the individuals identified as beneficial owners on the certification form.  The procedures for verification are to be identical to the procedures applicable to an individual opening an account under the existing CIP rules.

Accordingly, the financial institution must verify a beneficial owner’s identity using the information provided on the certification form.  For foreign persons, the form requires –

  • a passport number and country of issuance, or
  • other similar identification number (name, date of birth, address, and social security number (for U.S. persons), etc.),

according to the same documentary and non-documentary methods the financial institution may use in connection with its customer identification program (to the extent applicable to customers that are individuals), within a reasonable time after the account is opened.

A financial institution must also include procedures for responding to circumstances in which it cannot form a reasonable belief that it knows the true identity of the beneficial owner, as described under the CIP rules.

Definition of Beneficial Owner

The proposed definition of “beneficial owner” includes two independent prongs:

(a) an ownership prong and

(b) a control prong.

A covered financial institution must identify each individual under the ownership prong (i.e., each individual who owns 25 percent or more of the equity interests), in addition to one individual for the control prong (i.e., any individual with significant managerial control).

If no individual owns 25 percent or more of the equity interests, then the financial institution may identify a beneficial owner under the control prong only. If appropriate, the same individual(s) may be identified under both criteria.

Purpose of New CDD Rules

Clarifying and strengthening CDD requirements for U.S. financial institutions, including an obligation to identify beneficial owners, advances the purposes of the BSA by:

  • Enhancing the availability to law enforcement, as well as to the federal functional regulators and SROs, of beneficial ownership information of legal entity customers obtained by U.S. financial institutions, which assists law enforcement financial investigations and regulatory examinations and investigations;
  • Increasing the ability of financial institutions, law enforcement, and the intelligence community to identify the assets and accounts of terrorist organizations, money launderers, drug kingpins, weapons of mass destruction proliferators, and other national security threats, which strengthens compliance with sanctions programs designed to undercut financing and support for such persons;
  • Helping financial institutions assess and mitigate risk, and comply with all existing legal requirements, including the BSA and related authorities;
  • Facilitating reporting and investigations in support of tax compliance, and advancing international commitments made to foreign counterparts in connection with the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA); and
  • Promoting consistency in implementing and enforcing CDD regulatory expectations across and within financial sectors.

Cost of New Compliance?

FinCEN believes that there are approximately eight million such accounts opened annually by covered financial institutions. Based on the total number of covered financial institutions,65 this would result in each covered financial institution opening approximately 368 such accounts per year, or 1.5 per day. Estimating an average time for a covered financial institution to receive the certification and verify the information of 20 minutes and an average cost of $20 per hour, this results in a cost of approximately $54 million.

I will draft a topic chapter on the new FINCEN Beneficial Ownership Due Diligence requirements for the Winter release of LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

book cover

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



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Top 5 Tax Articles of the Week

Posted by William Byrnes on August 4, 2014

From Professor Paul Caron’s Tax Prof Blog (15 million views a year and growing) … read it at http://taxprof.typepad.com/taxprof_blog/2014/08/top-5.html

Prof Carron states that “There is a bit of movement in this week’s list of the Top 5 Recent Tax Paper Downloads on SSRN”.  book cover

I made #2 this week for the 58 page FATCA Guide:  Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA) (LexisNexis 2d ed. 2014)

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What Is Currency Crisis And How Can It Occur?

Posted by William Byrnes on August 4, 2014

Author Bio: Luke Peters is an avid reader of finance and economics related books, novels and other literature and likes to keep up with the latest news and developments in the market. He has written several blogs and articles related to law, finance and economics across the internet.

currency-crisisIn simple words, a currency crisis is a situation which is a result of decline in the value of the currency in a particular country. Currency crisis is one of the major causes for economic depression and economic downfall of a country. It affects the economy by disturbing the foreign exchange rates and decreases the purchasing power of a country. During the currency crisis, an economy’s central bank is unable to meet the demands that the banknotes promise through its exchange reserves and leads to the devaluation of the currency in foreign market. Listed below are the several factors that can trigger the currency crisis in an economy. (Image Credits @ epSos)

  1. Excessive Credit Creation

While the foreign exchange pegs are intended to increase the inflow of foreign exchange in the reserves to allow the creation of more money, the developing nations are plagued by higher credit creation from the foreign exchange reserves. The monetary policies of most developing nations are aimed at the protection from inflation that keeps their domestic interest rates higher than the foreign ones. This creates more demand for foreign currency.

  1. Excessive Liberalization

Most East Asian countries introduced liberalization policies during their early stages of developments and led to the decline of the domestic market and increase in the demand for imports. Globalization of the financial market during the early stages did not allow the market to fully develop to match the growing competition while the domestic interest rates remain high. Also the lack of risk assessment standards put the economy in further debt.

  1. Speculative Attacks

One of the major factors that have caused currency crisis across the world is the investor’s disbelief in the government’s ability to back up the promised made through their currency. Emerging economies often need large amount of financial credits to develop their economic and industrial sector and several times the debt surpasses the amount of reserves in the country’s central reserve. Pegging the domestic currency against a reserve currency can certainly stabilize a country’s economy but also makes the government susceptible to such speculative attacks from investors.

  1. Real Estate and Bad Debts

While the expansion of credit gave rise to the real estate business, poor risk assessment standards and the excessive amount of bad and unpaid debts led to the collapse of several banking institutions. Unpaid debts cause the depositors to lose faith in the bank’s ability to safe guard their money, leading to withdrawal of depositor funds that in turn leads to the bank’s collapse. The closed down bank put an additional stress on the government’s reserves and also causes a bad impression in the investors’ minds.

  1. Loose Monetary Policies

One of the major causes of currency crisis is the poor fiscal and foreign exchange policy of the government. Less emphasis on the domestic market and loose risk assessment policies often leads to excess credit creation, effectively creating a moral hazard for a country’s reserves.  Abundance of liquid assets allow unrestricted outflow of money without the guarantee of equivalent returns. The IMF policies have further led to the decline of several economies as easy credit increased the probabilities of adverse selection and losses.

The abovementioned factors are the major reasons that can trigger currency crisis in an economy. The controlled use of foreign exchange reserves and enforcement of monetary policies is one probable solution to the problem of currency crisis. One can refer to several foreign exchange websites to shire the services of forex brokers in Switzerland and other places in the world. Foreign exchange brokers facilitate an easy and stress free solution to all your foreign exchange needs.


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An opinion from Haydon Perryman – War and Taxes

Posted by William Byrnes on August 3, 2014

FATCA & CRS Training. Advice. Consultancy.

An opinion – War and Tax

Without tax you can not have war. War is expensive. War is a rich country’s game.

As long as we deny developing nations the means to retain their own money by ignoring the systematic theft of their resources by corrupt leaders who misappropriate nation’s money to themselves and conceal their theft in offshore accounts, we also deny them the means to defend themselves and improve their lot. In the meantime, we, in developed countries, hear the urgent pleas for help from developing countries and answer them as soon as we want to (if indeed we want to help at all).

Of course, that is all rubbish right? Developing countries have proved their ability to fight amongst themselves just as much as have developed countries. But that is no problem because we in developed counties facilitate capital flight away from developing countries, thus keeping them…

View original post 1,257 more words

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Impact Of BEPS In Low Income Countries, OECD Part I

Posted by William Byrnes on August 2, 2014

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

On August 1, 2014 the OECD issued its report “Impact Of BEPS In Low Income Countries, Part I” concludes that developing countries often face policy and other conditions that impact on their abilities to address base erosion and profit shifting.  The OECD reported the following:

  • Some developing countries lack the necessary legislative measures needed to address base erosion and profit shifting.OCDE_10cm_4c
  • Developing country measures to challenge BEPS is often hindered by lack of information.
  • Developing countries face difficulties in building the capacity needed to implement highly complex rules and to challenge well-advised and experienced MNEs.
  • The lack of effective legislation and gaps in capacity may leave the door open to simpler, but potentially more aggressive, tax avoidance than is typically encountered in developed economies.

In this report, the developing countries and international organizations identified the following key BEPS issues as being of most relevance:

  • Base erosion caused by excessive payments to foreign affiliated companies in respect of interest, service charges, management and technical fees and royalties.
  • Profit shifting through supply chain restructuring that contractually reallocates risks, and associated profit, to affiliated companies in low tax jurisdictions.
  • Significant difficulties in obtaining the information needed to assess and address BEPS issues, and to apply their transfer pricing rules.
  • The use of techniques to obtain treaty benefits in situations where such benefits were not intended.
  • Tax loss caused by the techniques used to avoid tax paid when assets situated in developing countries are sold.

In addition, the developing countries often face acute pressure to attract investment through offering tax incentives, which may erode the country’s tax base with little demonstrable benefit.

Part I of the report offered the interim conclusion that BEPS has the potential to considerably impact on domestic resource mobilization in developing countries. The OECD identified that the risks faced by many developing countries may differ from those faced by more advanced economies. The OECD will issue Part II of the report in September of 2014.

Part II will set which of the 15 actions included in the BEPS Action Plan are of most relevance to developing countries and whose corresponding outcomes can be expected to benefit them.  Also, the report will discuss other BEPS-related issues not in the Action Plan, including wasteful tax incentives, the lack of comparability data in developing countries and tax avoidance through the indirect transfer of assets located in developing countries. Part II will also discuss capacity building initiatives that, in the developing country context, must go hand in-hand with regulatory measures.

See my other transfer pricing articles at https://profwilliambyrnes.com/category/transfer-pricing-2/


Lexis’ Practical Guide to U.S. Transfer Pricing, 28 chapters from 30 expert contributors led by international tax Professor William Byrnes,  is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.

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August FATCA GIIN list analysed by country and by IGA

Posted by William Byrnes on August 1, 2014

By William Byrnes and Haydon Perryman

Treasury-Dept.-Seal-of-the-IRSThe IRS published its August list of 95,239  FATCA registered FFIs, including entities that completed the registration process by July 25th.  The increase has been disappointing to say the least.  Only 7,246 additional entities completed registration this past month, up from 87,993 in July.

89,718 FFIs (94%) are registered from the 101 IGA countries on the GIIN list.  Only 4,801 FFI (5%) registered from the 143 countries without an IGA for which FATCA withholding began July 1st.

June GIINs 77,354 -> July GIINs 87,993 -> August GIINs 95,239 (7,246 increase)

How Many Foreign Financial Institutions Are Still Not Registered?  Most!

Most pundits thought at least 20% of the FFIs requiring FATCA registration would have done so by now.  We were wrong.  I was personally thinking that 110,000 would be registered for the August 1st FFI list.  The small increase of just 7,246 is troubling.  Total global compliance remains in the single digits by both the IRS and foreign government estimated numbers.

The 30% FATCA withholding began July 1st on 143 countries (101 have IGAs that forestall withholding until January 1, 2015).  Only 4,801 FFI (5%) registered from these 143 countries.  Thus, FATCA compliance is running in the low, single digits for these countries.

read our analysis and a country-by-country, and IGA, breakdown at International Financial Law Professor

Who We Are?

Haydon Perryman, FATCA Compliance expert of Strevus, and I have been undertaking (and publishing) the leading, same-day, analysis of the previous June 2nd  and the July 1st  of the FATCA FFI GIIN list by country, by IGA, by EAG, as well as exploring other interesting aspects of registered FFIs, and FATCA compliance documentation (e.g. W-8s and equivalent forms allowed by IGA). Haydon brings the practical side to bear having established the FATCA compliance system for Tier 1 UK institutions and Tier 1 EU ones, and I the academic side being the primary author of Lexis’ Guide to FATCA Compliance and an international tax professor.

book cover

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

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

Posted in FATCA | Tagged: , , , | 2 Comments »

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