Tax, Wealth, and Risk Management Graduate Program Blog

3rd GATCAst is out

Posted by William Byrnes on July 18, 2014

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

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

Dodd Frank Progress Report – 4th Year Anniversary

Posted by William Byrnes on July 18, 2014

On July 18, 2014, Davis Polk LLC released its special Dodd-Frank Progress Report to mark the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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

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

Contents of Davis Polk’s Dodd Frank Progress Report

o Dodd-Frank Rulemaking Progress by Agency

o Title VII Progress on Required Rulemakings

o Dodd-Frank Rulemaking Progress on Passed Deadlines

o Dodd-Frank Rulemaking Progress in Select Categories

o Dodd-Frank Rulemaking Progress by Due Date

o Dodd-Frank Statutory Deadlines for Required Rulemakings

o Dodd-Frank Study Progress by Due Date

o Dodd-Frank Statutory Deadlines for Required Studies

o Tasks for Swap Dealers and Major Swap Participants

Posted in Compliance, Financial, Wealth Management | Tagged: Davis Polk, Dodd-Frank, Wall Street Reform Act | Leave a Comment »

FBME Bank Shut Out of US Financial System for “illicit finance business from the darkest corners of the criminal underworld”!

Posted by William Byrnes on July 18, 2014

On July 15, 2014 FBME Bank, a $2 billion asset size Tanzanian institution that conducts 90% of its business and holds 90% of its assets in Cyprus, has been named by FINCEN as a foreign financial institution of “primary money laundering concern” pursuant to Section 311 of the USA PATRIOT Act. FINCEN proposes to prohibit US financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME, effectively shutting FBME out of the US financial system.

What is FBME Bank?

FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., a subsidiary of the private Lebanese bank, Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab.

Who Regulates FBME Bank?

FBME, via its Cypriot branches, are licensed and regulated by the Cyprus Central Bank. According to a Wall Street Journal report of March 4, 2013, FBME acquired €240 million of Cypriot government junk bonds at the height of the 2011 Cypriot financial crisis, representing 13% of FBME’s balance sheet. In 2012, on the day of Parliament’s announcement of the Cyprus financial system bailout WJS noted, FBME coincidently moved its headquarters to Cyprus and applied for a full banking license that would allow it EU wide distribution.

18 months later, in November 2013, the Cyprus Central Bank stated that FBME may be subject to sanctions and a fine of up to €240 million for alleged violations of Cypriot capital controls put in place with the bailout. But FINCEN pointed out that in just the year from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term “surge” wire activity, structuring, and high-risk business customers. FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013.

What Money Laundering Is FBME Allegedly Involved With ?

FINCEN alleges:

In 2008, an FBME customer received a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah.
As of 2008, a financial advisor for a major transnational organized crime figure who banked entirely at FBME in Cyprus maintained a relationship with the owners of FBME.
FBME facilitated transactions for entities that perpetrate fraud and cybercrime against victims from around the world, including in the United States. For example, in 2009, FBME facilitated the transfer of over $100,000 to an FBME account involved in a High Yield Investment Program (“HYIP”) fraud against a U.S. person.
In September 5 2010, FBME facilitated the unauthorized transfer of over $100,000 to an FBME account from a Michigan-based company that was the victim of a phishing attack.
Since at least early 2011, the head of an international narcotics trafficking and money laundering network has used shell companies’ accounts at FBME to engage in financial activity.
Several FBME accounts have been the recipients of the proceeds of cybercriminal activity against U.S. victims. For example, in October 2012, an FBME account holder operating as a shell company was the intended beneficiary of over $600,000 in wire transfers generated from a fraud scheme, the majority of which came from a victim in California.
FBME facilitates U.S. sanctions evasion through its extensive customer base of shell companies. For example, at least one FBME customer is a front company for a U.S.-sanctioned Syrian entity, the Scientific Studies and Research Center (“SSRC”), which has been designated as a proliferator of weapons of mass destruction

What actions are the Cyprus Central Bank taking in regard to these transactions, and in general as regards the allegations of wide spread money laundering by FBME? For a detailed look at Cyprus AML controls, see Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus of April 24, 2013.

Update of July 19: Yesterday, the Cypriot Central Bank took control of FMBE’s Cypriot branch operations. FMBE, denying the FINCEN allegations, responded as follows:

FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the Bank’s services are indeed in compliance with applicable AML rules of the Central Bank of Cyprus and the European Union.

FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations.

FBME Bank continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.

This academic looks forward to FBME making available the detailed assessment of the leading international accountancy firm that FBME’s side of the story may be known.

What Did FINCEN Announce About FBME?

Director Jennifer Shasky Calvery stated in FINCEN’s July 17, 2014 announcement:

“FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance business from the darkest corners of the criminal underworld.” … “Unfortunately, this business plan has been far too successful. But today’s action, effectively shutting FBME off from the U.S. financial system, is a necessary step to disrupt the bank’s efforts and send the message that the United States will not stand by while financial institutions help those who intend to harm or threaten Americans.”

In its Notice of Finding, FINCEN stated “FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system.”

FINCEN Proposes Shutting FBME Out of US Financial System

In its Notice of Proposed Rulemaking, FINCEN states that it intends to impose the fifth, special measure allowed by Section 311 of the USA PATRIOT Act (“Section 311”). FINCEN’s Director has the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of “primary money laundering concern,” to require domestic financial institutions and financial agencies to take certain “special measures” to address the primary money laundering concern.

The fifth special measure would prohibit covered financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME Currently, only one U.S. covered financial institution maintains an account for FBME. FINCEN’s fifth measure entails as follows:

Covered financial institutions also would be required to take reasonable steps to apply special due diligence .. to all of their correspondent accounts to help ensure that no such account is being used to provide services to FBME. For direct correspondent relationships, this would involve a minimal burden in transmitting a one-time notice to certain foreign correspondent account holders concerning the prohibition on processing transactions involving FBME through the U.S. correspondent account.

U.S. financial institutions generally apply some level of screening and, when required, conduct some level of reporting of their transactions and accounts, often through the use of commercially-available software such as that used for compliance with the economic sanctions programs administered by the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury and to detect potential suspicious activity. To ensure that U.S. financial institutions are not being used unwittingly to process payments for or on behalf of FBME, directly or indirectly, some additional burden will be incurred by U.S. financial institutions to be vigilant in their suspicious activity monitoring procedures. …

A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to FBME:

Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for or on behalf of FBME Bank Ltd. The regulations also require us to notify you that you may not provide FBME Bank Ltd. or any of its subsidiaries with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving FBME Bank Ltd. or any of its subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account.

The special due diligence would also include implementing risk-based procedures designed to identify any use of correspondent accounts to process transactions involving FBME. A covered financial institution would be expected to apply an appropriate screening mechanism to identify a funds transfer order that on its face listed FBME as the financial institution of the originator or beneficiary, or otherwise referenced FBME in a manner detectable under the financial institution’s normal screening mechanisms. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by OFAC.

A covered financial institution would also be required to implement risk-based procedures to identify indirect use of its correspondent accounts, including through methods used to hide the beneficial owner of a transaction. Specifically, FinCEN is concerned that FBME may attempt to disguise its transactions by relying on types of payments and accounts that would not explicitly identify FBME as an involved party. A financial institution may develop a suspicion of such misuse based on other information in its possession, patterns of transactions, or any other method available to it based on its existing systems. Under the proposed rule, a covered financial institution that suspects or has reason to suspect use of a correspondent account to process transactions involving FBME must take all appropriate steps to attempt to verify and prevent such use, …

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.

Posted in Compliance, Money Laundering | Tagged: Bank Secrecy Act, correspondent account, Cyprus, FBME, Money Laundering, Patriot Act | 8 Comments »

2014 Update of OECD Model Tax Convention

Posted by William Byrnes on July 18, 2014

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

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

The application of Article 17 (Artistes and Sportsmen) of the OECD Model Tax Convention (April 23, 2010)
Revised proposals concerning the meaning of “beneficial owner” (October 19, 2012)
Revised discussion draft on tax treaty issues related to emissions permits and credits (October 19, 2012)
Tax treaty treatment of termination payments (June 25, 2013)
Technical changes to be included in the next Update to the Model Tax Convention (November 15, 2013).

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

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

Posted in OECD | Tagged: BEPS, DTA, Model tax treaty, OECD, Tax treaty | Leave a Comment »

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

Posted by William Byrnes on July 18, 2014

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

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

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

Substantial Money Laundering Penalties – But Not Tax Collection

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

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

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

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

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

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

Have These Efforts Substantially Increased Taxpayer Compliance?

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

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

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

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

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

The IRS also responded as follows (excerpted):

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

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

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

How Much Tax Revenue Did Congress Expect

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted in FATCA | Tagged: FATCA, FBAR, Offshore Voluntary Disclosure, OVDI | 1 Comment »

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

Posted by William Byrnes on July 17, 2014

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

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

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

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

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

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

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

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

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

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

Posted in Compliance | Tagged: anti money laundering, IRAN, OFAC, sanctions, Tofasco, weapons Mass Destruction | Leave a Comment »

compliance jobs on upward trajectory after recent enforcement actions

Posted by William Byrnes on July 15, 2014

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

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

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

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

book cover

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

Posted in Uncategorized | Tagged: AML, anti money laundering, citibank, Citigroup, Compliance | Leave a Comment »

Annuities and Long Term Care Does the Rider Fit?

Posted by William Byrnes on July 15, 2014

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

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

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

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

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

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Posted in Retirement Planning | Tagged: Annuity, annuity rider, Long-term care, LTC, LTC rider, rider | Leave a Comment »

Indexed Variable Annuities (IVAs) v. Structured Annuities

Posted by William Byrnes on July 14, 2014

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

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

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

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

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

Posted in Retirement Planning, Wealth Management | Tagged: annuities, Annuity, Annuity (US financial products), Retirement | Leave a Comment »

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

Posted by William Byrnes on July 11, 2014

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

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

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

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

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

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

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

Posted in Compliance, Money Laundering | Tagged: AML, bit coin, Compliance, crypto currency, Stored Value Cards | Leave a Comment »

IRS Canceling Unused ITINS – 16 Million At Risk

Posted by William Byrnes on July 10, 2014

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

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

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

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

Under the new policy:

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

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

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

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

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

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

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

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

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

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

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

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

Practical Compliance Aspects of FATCA and GATCA

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

Posted in FATCA | Tagged: FATCA, Individual Taxpayer Identification Number, ITIN | Leave a Comment »

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

Posted by William Byrnes on July 9, 2014

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

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

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

Posted in FATCA | 1 Comment »

FATCA Chapter 1 complementary download

Posted by William Byrnes on July 9, 2014

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

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

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

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

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

Practical Compliance Aspects of FATCA and GATCA

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

Number of Pages in PDF File: 58

Posted in book, FATCA | Tagged: Common Reporting System, FATCA, GATCA, IGA, intergovernmental agreement, international tax, OECD, offshore, tax compliance, tax haven | Leave a Comment »

3 Model 1B jurisdictions

Posted by William Byrnes on July 9, 2014

FATCA & CRS Training. Advice. Consultancy.

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

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

Bahamas
Cayman Islands
British Virgin Islands

Feel free to email me: haydon@haydonperryman.com

if you spot anything else I have missed.

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Errors on the IRS list of “Approved FFIs”?

Posted by William Byrnes on July 9, 2014

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

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

FATCA & CRS Training. Advice. Consultancy.

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

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

View original post 500 more words

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

Posted by William Byrnes on July 9, 2014

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

FATCA & CRS Training. Advice. Consultancy.

Where to begin?

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

Of the 77,353 entities who registered:

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

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

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101 IGA Countries

Posted by William Byrnes on July 9, 2014

FATCA & CRS Training. Advice. Consultancy.

There are now 101 IGA Countries.

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

See

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

Posted by William Byrnes on July 8, 2014

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

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

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

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

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

Model 1 IGA – 34

Jurisdictions that have reached agreements in substance:

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

Algeria (6-30-2014)
Anguilla (6-30-2014)
Antigua and Barbuda (6-3-2014)
Azerbaijan (5-16-2014)
Bahamas (4-17-2014)
Bahrain (6-30-2014)
Barbados (5-27-2014)
Belarus (6-6-2014)
Brazil (4-2-2014):
Bulgaria (4-23-2014)
Cabo Verde (6-30-2014)
China (6-26-2014)
Colombia (4-23-2014)
Croatia (4-2-2014)
Curaçao (4-30-2014)
Czech Republic (4-2-2014)
Cyprus (4-22-2014)
Dominica (6-19-2014):
Dominican Republic (6-30-2014)
Georgia (6-12-201)
Greenland (6-29-2014)
Grenada (6-16-2014)
Guyana (6-24-2014)
Haiti (6-30-2014)
India (4-11-2014)
Indonesia (5-4-2014):
Kosovo (4-2-2014)
Kuwait (5-1-2014)
Lithuania (4-2-2014)
Malaysia (6-30-2014)
Montenegro (6-30-2014)
Panama (5-1-2014)
Peru (5-1-2014):
Poland (4-2-2014):
Portugal (4-2-2014):
Qatar (4-2-2014):
Romania (4-2-2014):
St. Kitts and Nevis (6-4-2014)
St. Lucia (6-12-2014):
St. Vincent and the Grenadines (6-2-2014)
Saudi Arabia (6-24-2014):
Serbia (6-30-2014)
Seychelles (5-28-2014)
Singapore (5-5-2014):
Slovak Republic (4-11-2014)
South Korea (4-2-2014)
Sweden (4-24-2014)
Thailand (6-24-2014):
Turkey (6-3-2014)
Turkmenistan (6-3-2014)
Turks and Caicos Islands (5-12-2014):
Ukraine (6-26-2014)
United Arab Emirates (5-23-2014)
Uzbekistan (6-30-2014)

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 8

Armenia (5-8-2014)
Hong Kong (5-9-2014)
Iraq (6-30-2014)
Moldova (6-30-2014)
Nicaragua (6-30-2014
Paraguay (6-6-2014):
San Marino (6-30-2014)
Taiwan (6-23-2014)

FATCA by the Numbers….

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

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

Posted in FATCA | Tagged: FATCA, Gaza, IGA, Palestine, West Bank | 2 Comments »

100 IGAs as of July 7, 2014

Posted by William Byrnes on July 7, 2014

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

Posted by William Byrnes on July 7, 2014

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

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

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

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

Posted in Retirement Planning | Tagged: rollover, Roth 401(k), Roth conversion, Roth IRA | Leave a Comment »

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

Posted by William Byrnes on July 5, 2014

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

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

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

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

Treasury Argues Capital Flight Requires FATCA IGAs With Other Countries

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

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

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

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

Treasury Argues Capital Flight Is Not a FATCA Concern

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

Quoting the Court:

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

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

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

4. Capital Flight

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

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

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

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

Comments from my 2010 lecture on tax elasticity of deposits

Tax Elasticity Of Deposits

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

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

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

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

The Establishment of London as an International Financial Center

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

The Establishment of Miami as an International Financial Center

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

The Establishment of Luxembourg as an International Financial Center

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

Switzerland’s Fisc May Come Out Ahead

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

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

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

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

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

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

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

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

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

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

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

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

Practical Compliance Aspects of FATCA and GATCA

Posted in FATCA, information exchange | Tagged: capital flight, Christians, FATCA, Florida Bankers V Treasury, IGA, Texas Bankers v Treasury, Townsend | 2 Comments »

66th country signs OECD Convention on Tax Information Exchange

Posted by William Byrnes on July 4, 2014

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

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

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

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

Automatic Exchange of Information for Tax Purposes

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

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

Common Reporting and Due Diligence Standards (“CRS”)

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

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

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

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

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

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

Single Global Standard for Automatic Exchange (“GATCA”)

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

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

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

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.

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

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

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

Global Forum Peer Reviews and Monitoring Of Automatic Exchange

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

Practical Compliance Aspects of FATCA and GATCA

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

Posted in FATCA, information exchange, OECD | Tagged: AEOI, CRS, exchange of information, FATCA, GATCA, Global Forum on Transparency and Exchange of Information for Tax Purposes, Multilateral Convention on Mutual Administrative Assistance in Tax Matters, OECD | Leave a Comment »

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

Posted by William Byrnes on July 3, 2014

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

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

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

What is HAMP?

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

What SunTrust did?

Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust simply placed piles of unopened homeowners’ HAMP applications and paperwork on an office floor until at one point, the floor buckled under the sheer weight of the document packages. Documents and paperwork were lost.

SunTrust issued “mass denials” to HAMP applicants and lied to the Treasury Department about the reasons for the denials. SunTrust’s statements to customers were false.

SunTrust improperly commenced foreclosure proceedings on homeowners in active HAMP trial periods, and some of those homeowners saw their homes listed by SunTrust for sale in local newspapers.

Rather than reviewing HAMP applications in 20 days and rendering modification decisions within an “as advertised” three- to four-month trial period, in the worst cases, some homeowners were confined to extended trial periods of two or more years.

SunTrust misreported current borrowers as delinquent to major credit bureaus.

SunTrust denied HAMP modifications to eligible homeowners and instead placed the homeowners in alternative, private modifications that were less favorable to borrowers.

SunTrust improperly capitalized amounts of interest onto borrowers’ unpaid principal balances.

Other borrowers who were transferred from SunTrust to another servicer while on active HAMP trial modifications were penalized.

SunTrust admitted that between January 2006 and March 2012, it originated and underwrote FHA-insured mortgages that did not meet FHA requirements, that it failed to carry out an effective quality control program to identify non-compliant loans, and that it failed to self-report to HUD even the defective loans it did identify.

SunTrust also admitted that numerous audits and other documents disseminated to its management between 2009 and 2012 described significant flaws and inadequacies in SunTrust’s origination, underwriting, and quality control processes, and notified SunTrust management that as many as 50% or more of SunTrust’s FHA-insured mortgages did not comply with FHA requirements.

SunTrust failed to promptly and accurately apply payments made by borrowers, and charged unauthorized fees for default-related services.

SunTrust failed to provide accurate information about loan modification and other loss-mitigation services, failed to properly process borrowers’ applications and calculate their eligibility for loan modifications, and provided false or misleading reasons for denying loan modifications.

Engaged in illegal foreclosure practices by providing false or misleading information to consumers about the status of foreclosure proceedings where the borrower was in good faith actively pursuing a loss mitigation alternative also offered by SunTrust.

SunTrust robo-signed foreclosure documents, including preparing and filing affidavits whose signers had not actually reviewed any information to verify the claims.

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

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

Posted in Compliance, Money Laundering | Tagged: Mortgage, non prosecution agreement, Suntrust, TARP, HAMP, fine, foreclosure, consent judgment, CFSB, mortgage fraud, SunTrust Banks, Inc, SunTrust Mortgage Inc. | Leave a Comment »

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

Posted by William Byrnes on July 3, 2014

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

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

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

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

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

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

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

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

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

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

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

Posted in Tax Exempt Orgs | Tagged: 501(c)(3), charity, form 1023, Tax exemption, tax exempts | 1 Comment »

20 jurisdictions recognized by the US but not by FATCA

Posted by William Byrnes on July 2, 2014

FATCA & CRS Training. Advice. Consultancy.

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

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

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

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

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

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

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

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

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

Posted by William Byrnes on July 2, 2014

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

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

FATCA EAG Definition

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

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

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

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

Limited Branches and Affiliates Exceptions Under Regs

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

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

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

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

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

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

(e) Affiliated groups (1) In general

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

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

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

(2) Expanded affiliated group

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

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

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

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

26 U.S. Code § 1504 – Definitions

(a) Affiliated group defined

For purposes of this subtitle—

(1) In general

The term “affiliated group” means—

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

(B)

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

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

(2) 80-percent voting and value test

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

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

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

Posted in FATCA | Tagged: EAG, Expanded affiliated group, FATCA, FFI, IGA | Leave a Comment »

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

Posted by William Byrnes on July 1, 2014

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

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

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

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

Why is the Range for Potential FFI Registration so Expansive?

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

What is the Definition of Financial Institution?

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

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

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

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

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

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

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

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

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

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

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

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

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

IGAs: 98

Model 1: 85

Model 2: 13

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

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

Jurisdiction	July FFI #	IGA Scenario	Signed/Substance	Date
Afghanistan	8	No IGA
Albania	16	No IGA
Algeria	9	Model 1A IGA	Substance	June 30, 2014
Andorra	35	No IGA
Angola	10	No IGA
Anguilla	120	No IGA
Antigua and Barbuda	39	Model 1A IGA	Substance	June 03, 2014
Argentina	401	No IGA
Armenia	34	Model 2 IGA	Substance	May 08, 2014
Aruba	16	No IGA
Australia	2,073	Model 1A IGA	Signed	April 28, 2014
Austria	3,010	Model 2 IGA	Signed	April 29, 2014
Azerbaijan	34	Model 1A IGA	Substance	May 16, 2014
Bahamas	646	Model 1A IGA	Substance	April 17, 2014
Bahrain	165	Model 1A IGA	Substance	June 30, 2014
Bangladesh	81	No IGA
Barbados	146	Model 1A IGA	Substance	May 27, 2014
Belarus	68	Model 1A IGA	Substance	June 06, 2014
Belgium	256	Model 1A IGA	Signed	April 23, 2014
Belize	135	No IGA
Benin	8	No IGA
Bermuda	1,579	Model 2 IGA	Signed	December 19, 2013
Bhutan	1	No IGA
Bosnia and Herzegovina	23	No IGA
Botswana	20	No IGA
Brazil	2,362	Model 1A IGA	Substance	April 02, 2014
British Indian Ocean Territory	1	No IGA
Brunei Darussalam	21	No IGA
Bulgaria	96	Model 1A IGA	Substance	April 23, 2013
Burkina Faso	6	No IGA
Burundi	3	No IGA
Cambodia	82	No IGA
Cameroon	10	No IGA
Canada	2,566	Model 1A IGA	Signed	February 05, 2014
Cape Verde	6	Model 1A IGA	Substance	June 30, 2014
Cayman Islands	17,207	Model 1B IGA	Signed	November 29, 2013
Central African Republic	2	No IGA
Chad	4	No IGA
Chile	342	Model 2 IGA	Signed	March 05, 2014
China	213	Model 1A IGA	Substance	June 26, 2014
Christmas Island	1	No IGA
Colombia	184	Model 1A IGA	Substance	April 23, 2014
Comoros	1	No IGA
Congo	5	No IGA
Cook Islands	87	No IGA
Costa Rica	116	Model 1A IGA	Signed	November 26, 2013
Cote d’Ivoire	18	No IGA
Croatia	67	Model 1A IGA	Substance	April 02, 2014
Curacao	189	Model 1A IGA	Substance	April 30, 2014
Cyprus	330	Model 1A IGA	Substance	April 22, 2014
Czech Republic	115	Model 1A IGA	Substance	April 02, 2014
Denmark	204	Model 1A IGA	Signed	November 19, 2012
Djibouti	2	No IGA
Dominica	18	Model 1A IGA	Substance	June 19, 2014
Dominican Republic	75	Model 1A IGA	Substance	June 30, 2014
Ecuador	27	No IGA
Egypt	109	No IGA
El Salvador	41	No IGA
Equatorial Guinea	1	No IGA
Estonia	33	Model 1A IGA	Signed	April 11, 2014
Falkland Islands (Malvinas)	1	No IGA
Fiji	5	No IGA
Finland	482	Model 1A IGA	Signed	March 05, 2014
France	2,422	Model 1A IGA	Signed	November 14, 2013
French Polynesia	3	No IGA
French Southern Territories	1	No IGA
Gabon	4	No IGA
Gambia	11	No IGA
Georgia	26	Model 1A IGA	Substance	June 12, 2014
Germany	2,894	Model 1A IGA	Signed	May 31, 2013
Ghana	51	No IGA
Gibraltar	116	Model 1A IGA	Signed	May 08, 2014
Greece	103	No IGA
Greenland	1	Model 1A IGA	Substance	June 30, 2014
Grenada	33	Model 1A IGA	Substance	June 16, 2014
Guadeloupe	1	No IGA
Guam	4	US Territory
Guatemala	81	No IGA
Guernsey	2,585	Model 1A IGA	Signed	December 13, 2013
Guinea	7	No IGA
Guyana	7	Model 1A IGA	Substance	June 24, 2014
Haiti	13	Model 1A IGA	Substance	June 30, 2014
Honduras	50	Model 1A IGA	Signed	March 31, 2014
Hong Kong	2,008	Model 2 IGA	Substance	May 09, 2014
Hungary	115	Model 1A IGA	Signed	February 04, 2014
Iceland	12	No IGA
India	321	Model 1A IGA	Substance	April 11, 2014
Indonesia	351	Model 1A IGA	Substance	May 04, 2014
Iraq	49	Model 2 IGA	Substance	June 30, 2014
Ireland	2,007	Model 1A IGA	Signed	January 23, 2013
Isle of Man	355	Model 1A IGA	Signed	December 13, 2013
Israel	352	Model 1A IGA	Substance	June 30, 2014
Italy	587	Model 1A IGA	Signed	January 10, 2014
Jamaica	42	Model 1A IGA	Signed	May 01, 2014
Japan	3,390	Model 2 IGA	Signed	June 11, 2013
Jersey	1,974	Model 1A IGA	Signed	December 13, 2013
Jordan	48	No IGA
Kazakhstan	96	No IGA
Kenya	54	No IGA
Kuwait	84	Model 1A IGA	Substance	May 01, 2014
Kyrgyzstan	29	No IGA
Lao People’s Democratic Republic	13	No IGA
Latvia	50	Model 1A IGA	Signed	June 27, 2014
Lebanon	122	No IGA
Lesotho	2	No IGA
Liberia	29	No IGA
Liechtenstein	291	Model 1A IGA	Signed	May 19, 2014
Lithuania	29	Model 1A IGA	Substance	April 02, 2014
Luxembourg	4,061	Model 1A IGA	Signed	March 28, 2014
Macao	64	No IGA
Madagascar	7	No IGA
Malawi	10	No IGA
Malaysia	437	Model 1A IGA	Substance	June 30, 2014
Maldives	6	No IGA
Mali	5	No IGA
Malta	348	Model 1A IGA	Signed	December 16, 2013
Marshall Islands	80	No IGA
Martinique	1	No IGA
Mauritania	6	No IGA
Mauritius	872	Model 1A IGA	Signed	December 27, 2013
Mexico	410	Model 1A IGA	Signed	April 09, 2014
Monaco	105	No IGA
Mongolia	15	No IGA
Montenegro	7	Model 1A IGA	Substance	June 30, 2014
Montserrat	12	No IGA
Morocco	133	No IGA
Mozambique	15	No IGA
Myanmar	6	No IGA
Namibia	26	No IGA
Nepal	33	No IGA
Netherlands	2,280	Model 1A IGA	Signed	December 18, 2013
New Caledonia	5	No IGA
New Zealand	396	Model 1A IGA	Signed	June 12, 2014
Nicaragua	15	Model 2 IGA	Substance	June 30, 2014
Niger	4	No IGA
Nigeria	76	No IGA
Norway	349	Model 1A IGA	Signed	April 15, 2013
Oman	25	No IGA
Pakistan	89	No IGA
Panama	484	Model 1A IGA	Substance	May 01, 2014
Papua New Guinea	4	No IGA
Paraguay	17	Model 2 IGA	Substance	June 06, 2014
Peru	172	Model 1A IGA	Substance	May 01, 2014
Philippines	178	No IGA
Poland	180	Model 1A IGA	Substance	April 02, 2013
Portugal	287	Model 1A IGA	Substance	April 02, 2014
Puerto Rico	4	US Territory
Qatar	52	Model 1A IGA	Substance	April 02, 2014
Reunion	1	No IGA
Romania	114	Model 1A IGA	Substance	April 02, 2014
Russian Federation	729	No IGA
Rwanda	9	No IGA
Saint Kitts and Nevis	106	Model 1A IGA	Substance	June 04, 2014
Saint Lucia	66	Model 1A IGA	Substance	June 12, 2014
Saint Martin (French part)	3	No IGA
Saint Pierre and Miquelon	1	No IGA
Saint Vincent and The Grenadines	124	Model 1A IGA	Substance	June 02, 2014
Samoa	51	US Territory
San Marino	15	Model 2 IGA	Substance	June 30, 2014
Saudi Arabia	21	Model 1A IGA	Substance	June 24, 2014
Senegal	10	No IGA
Serbia	32	Model 1A IGA	Substance	June 30, 2014
Seychelles	43	Model 1A IGA	Substance	May 28, 2014
Sierra Leone	9	No IGA
Singapore	1,072	Model 1A IGA	Substance	May 05, 2014
Sint Maarten (Dutch part)	17	No IGA
Slovakia	63	Model 1A IGA	Substance	April 11, 2014
Slovenia	32	Model 1A IGA	Signed	June 02, 2014
Solomon Islands	3	No IGA
South Africa	395	Model 1A IGA	Signed	June 09, 2014
South Sudan	5	No IGA
Spain	1,227	Model 1A IGA	Signed	May 14, 2013
Sri Lanka	42	No IGA
Suriname	9	No IGA
Swaziland	5	No IGA
Sweden	414	Model 1A IGA	Substance	April 24, 2014
Switzerland	4,279	Model 2 IGA	Signed	February 14, 2013
Taiwan	481	Model 2 IGA	Substance	June 23, 2014
Tajikistan	19	No IGA
Thailand	823	Model 1A IGA	Substance	June 24, 2014
Timor-Leste	2	No IGA
Togo	6	No IGA
Tonga	2	No IGA
Trinidad and Tobago	59	No IGA
Tunisia	10	No IGA
Turkey	210	Model 1A IGA	Substance	June 03, 2014
Turkmenistan	1	Model 1A IGA	Substance	June 03, 2014
Turks and Caicos Islands	35	Model 1A IGA	Substance	May 12, 2014
Uganda	19	No IGA
Ukraine	187	Model 1A IGA	Substance	June 28, 2014
United Arab Emirates	204	Model 1A IGA	Substance	May 21, 2014
United Kingdom	6,994	Model 1A IGA	Signed	September 12, 2012
United States	620	US
Uruguay	142	No IGA
Uzbekistan	2	No IGA
Vanuatu	5	No IGA
Viet Nam	129	No IGA
Virgin Islands (British)	2,373	Model 1B IGA	Signed	June 30, 2014
Wallis and Futuna	1	No IGA
Yemen	18	No IGA
Zambia	13	No IGA
Zimbabwe	6	No IGA
Other	32	No IGA		January 01, 1904
Korea, Republic of	448	Model 1A IGA	Substance	April 02, 2014
Bolivia, Plurinational State Of	31	No IGA
Congo, Democratic Republic Of The	9	No IGA
Macedonia, The Former Yugoslav Republic Of	18	No IGA
Moldova, Republic Of	20	Model 2 IGA	Substance	June 30, 2014
Venezuela, Bolivarian Republic Of	49	No IGA
Tanzania, United Republic Of	16	No IGA
Libya	7	No IGA
Bonaire, Sint Eustatius And Saba	12	No IGA
Korea, Democratic People’s Republic Of	1	No IGA
Virgin Islands (U.S.)	2	US Territory
Guinea-Bissau	1	No IGA
Kiribati	1	No IGA
Sao Tome and Principe	1	No IGA
WEST BANK AND GAZA	23	No IGA
Grand Total	87,993
IRS Registered FFI List (Sum of Registrations)	July ’14#	County #
Model 1A IGA	48,175	85
Model 1B IGA	19,580	2
Model 2 IGA	15,239	13
US	620	1
US Territory	61	5	Note 1
No IGA	4,318	144	Note 2
Total	87,993	250	Notes 1, 2 & 3
Non IGA	4,318	144
Non IGA%	5%	58%
IGA	82,994	98
IGA%	94%	39%
US and US Territories	681	6
1%	2%
There is only 1 jurisdiction with an IGA that has zero registrations: Kosovo, implying that registration is a lead indicator of an IGA being signed

Note 1
This does not include:
Baker Island, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, Midway Islands, Navassa Island, Palmyra Atoll, Wake Island
Note 2
This does not include:
Akrotiri, Ashmore and Cartier Islands, Clipperton Island, Coral Sea Islands, Dhekelia, Jan Mayen, Paracel Islands, Spratly Islands, Svalbard
Note 3
WEST BANK AND GAZA is not on the ISO list provided by the IRS. However, the IRS have allowed use of ISO 3166-1 Code “275” for this territory on their list of approved FFIs.
FYI: The US Department of State does not recognize Palestine, much less Gaza and the West Bank. But since the IRS does for purposes of FATCA, these are included for completeness.

Complying with FATCA?

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

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

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

Jurisdictions that have reached agreements in substance:

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

Algeria (6-30-2014) < – new entry
Antigua and Barbuda (6-3-2014)
Azerbaijan (5-16-2014)
Bahamas (4-17-2014)
Bahrain (6-30-2014) < – new entry
Barbados (5-27-2014)
Belarus (6-6-2014)
Brazil (4-2-2014):
Bulgaria (4-23-2014)
Cabo Verde (6-30-2014) <– new entry
China (6-26-2014) <– new entry
Colombia (4-23-2014)
Croatia (4-2-2014)
Curaçao (4-30-2014)
Czech Republic (4-2-2014)
Cyprus (4-22-2014)
Dominica (6-19-2014):
Dominican Republic (6-30-2014) <– new entry
Georgia (6-12-201)
Greenland (6-29-2014) <– new entry
Grenada (6-16-2014)
Guyana (6-24-2014) <– new entry
Haiti (6-30-2014) <– new entry
India (4-11-2014)
Indonesia (5-4-2014):
Kosovo (4-2-2014)
Kuwait (5-1-2014)
Lithuania (4-2-2014)
Malaysia (6-30-2014) <– new entry
Montenegro (6-30-2014) <– new entry
Panama (5-1-2014)
Peru (5-1-2014):
Poland (4-2-2014):
Portugal (4-2-2014):
Qatar (4-2-2014):
Romania (4-2-2014):
St. Kitts and Nevis (6-4-2014)
St. Lucia (6-12-2014):
St. Vincent and the Grenadines (6-2-2014)
Saudi Arabia (6-24-2014):
Serbia (6-30-2014)
Seychelles (5-28-2014)
Singapore (5-5-2014):
Slovak Republic (4-11-2014)
South Korea (4-2-2014)
Sweden (4-24-2014)
Thailand (6-24-2014):
Turkey (6-3-2014)
Turkmenistan (6-3-2014)
Turks and Caicos Islands (5-12-2014):
Ukraine (6-26-2014) < – new entry
United Arab Emirates (5-23-2014)

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 8

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

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

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

Posted by William Byrnes on June 30, 2014

$8.9 Billion Settlement of $19 Billion Possible Penalty

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

What Did BNP Paribas Do Exactly?

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

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

How Bad Was BNP Paribas Conduct?

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

$8 Billion with Sudan

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

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

$1 Billion with Iran

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

$700 Million With Cuba

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

$1.5 Million with Burma

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

Who Was Involved?

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

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

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

Did Anyone Go to Prison?

No. No charges have been brought.

If Not Prison, Then What Was the Discipline?

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

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

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

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

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

Who Is Paying the Fine?

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

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

Total	100%

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

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

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

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

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

Is AML Training Effective or Whitewashing?

Is AML Training Effective or Whitewashing? Part II

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

Selected Settlement Agreements:

2014 Information

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

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

2013 Information

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

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

2012 Information

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

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

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

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

2011 Information

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

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

2010 Information

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

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

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

2009 Information

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

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

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

Posted in Compliance, Money Laundering | Tagged: AML, BNP, BNP Paribas, IRAN, Money Laundering, OFAC, SUdan | 5 Comments »

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

Posted by William Byrnes on June 30, 2014

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

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

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

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

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

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

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

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

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

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

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

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

What about FFIs that registered on June 30^th?

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

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

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

When Must FFIs in IGA countries Register?

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

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

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

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

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

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

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

IGAs: 90

Model 1: 80

Model 2: 10

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

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

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

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

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

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

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

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

Model 2 IGA – 5

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

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

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

Posted by William Byrnes on June 30, 2014

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

Who is considered an individual filer?

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

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

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

Who Must File an FBAR?

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

What is a Financial Account?

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

What is a Financial Interest?

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

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

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

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

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

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

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

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

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

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

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

Are IRA Owners and Beneficiaries included?

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

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

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

What if I did not file FBAR in previous years?

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

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

Complying with FATCA?

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

An unconventional retirement planning tool

Posted by William Byrnes on June 30, 2014

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

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

The HSA income strategy …

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

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

Analysis of FATCA 2014 1042-S Instruction’s

Posted by William Byrnes on June 28, 2014

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

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

Who Must File?

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

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

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

Who is a Withholding agent?

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

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

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

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

What’s New for the 2014 Form 1042-S?

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

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

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

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

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

Use Form 1042-S to:

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

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

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

Amounts Subject to Reporting on Form 1042-S

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

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

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

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

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

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

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

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

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

(d) Rents.

(e) Royalties.

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

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

(h) Annuities.

(i) Pension distributions and other deferred income.

(j) Most gambling winnings.

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

(l) Notional principal contract income.

(m) Insurance premiums.

(n) REMIC excess inclusions.

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

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

(q) Foreign targeted registered obligations.

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

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

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

(u) Guarantee of indebtedness.

(v) Specified Federal procurement payments.

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

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

How Are Disregarded Entities Reported?

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

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

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

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

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

Lexis Guide to FATCA Compliance – 2015 Edition

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

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

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

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

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

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

Updated 2014 Qualified Intermediary (QI) Agreement released !

Posted by William Byrnes on June 27, 2014

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

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

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

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

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

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

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

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

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

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

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

Complying with FATCA?

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

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

Posted by William Byrnes on June 26, 2014

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

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

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

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

Posted by William Byrnes on June 25, 2014

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

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

Analysis of W-8BEN-E Instructions …

Who Must Provide W-8BEN-E?

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

All Beneficial Owners

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

Treatment as US Account

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

Hybrids

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

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

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

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

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

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

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

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

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

Expiration of Form W-8BEN-E.

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

Change in circumstances.

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

Certification

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

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

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

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

Part I – Identification of Beneficial Owner

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

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

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

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

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

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

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

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

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

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

FFIs Covered by an IGA and Related Entities

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

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

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

Requirement to Provide a GIIN

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

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

501(c) Organization

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

Non-Profit Organizations Covered by an IGA

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

Completion of Parts IV through XXVIII

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

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

Part X – Owner-Documented FFI

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

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

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

Entities Providing Certifications Under an Applicable IGA

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

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

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

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

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

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

Lexis Guide to FATCA Compliance – 2015 Edition

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

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

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

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

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

Posted by William Byrnes on June 25, 2014

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

FATCA FACTS

IGAs: 83 (72,034 FFI/branches)

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

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

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

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

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

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

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

Non IGA Registrations (Participating FFI and other)

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

30% FATCA Withholding Begins July 1st

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

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

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

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

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

FFI Registration Among Model 1 IGAs and the Rest

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

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

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

BRIC Registration

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

NAFTA Registrations

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

Major OECD Countries Registrations

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

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

European Financial Centers Registrations

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

Caribbean Financial Centers Registrations

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

State of Palestine Registrations

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

North Korean Registrations

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

“Other” Registrations

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

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

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

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

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

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

Model 2 IGA – 5

Jurisdictions that have reached agreements in substance:

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

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

Model 2 IGA – 4

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

Practical Compliance Guide for FATCA

Posted in FATCA | Tagged: FATCA, FFI, GIIN, IGA, Withholding tax | Leave a Comment »

5 Tax Facts about IRS Notices and Letters

Posted by William Byrnes on June 25, 2014

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

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

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

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

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

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

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

IRS list of IGA Countries revised last night

Posted by William Byrnes on June 24, 2014

Posted in Uncategorized | Leave a Comment »

FFI Agreements Amended by IRS One Week Before Withholding Starts

Posted by William Byrnes on June 24, 2014

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

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

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

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

How Many FFIS are Impacted by this Change?

About 26% (19,960) of the registered FFIs are impacted by the FFI agreement changes, in addition to any new registrations from the current 9 Model 2 countries/jurisdictions and 171 countries/jurisdictions without an IGA.

77,353 financial institutions and their branches registered from 205 countries and jurisdictions, of a total of 250 countries and jurisdictions recognized by the USA.

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

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

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

Non IGA Registrations (Participating FFI and other)

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

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

Meanwhile, 30% withholding on all withholdable payments to nonparticipating FFIs in the 171 non-IGA countries begins next week on July 1. Most commentators expect a rush of over 300,000 FFI registrations by the end of 2014. Some predict more than a half million entities must still register, based on the UK’s HMRC estimate that 75,000 entities are impacted by FATCA within the United Kingdom (where less than 6,300 are currently registered on the GIIN list).

Updates to FFI Agreement

Definitions

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

Incorporating Six Month Extension for Entities

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

Back Up Withholding in Certain Situations

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

Depositing Withheld Tax

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

Lead FFI Responsibility

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

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

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

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

Portional Allocation of Withholdable Payments

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

FFI Agreement Sections

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

Practical Compliance Aspects of FATCA and GATCA

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

New 2014 FATCA Form W-8IMY and Instructions Analysis

Posted by William Byrnes on June 24, 2014

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

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

Form W-8IMY is submitted generally by a payment recipient (the “filer”) with non-beneficial owner status, i.e. an intermediary. Such intermediary can be a U.S. branch, a qualified intermediary, a non-qualified intermediary, foreign partnership, foreign grantor or a foreign simple trust. Form W-8IMY requires a tax identification number.

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

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

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

Form W-8IMY by Part

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

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

Question 4 of Part I requests the QI status:

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

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

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

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

Who Must File W-8IMY?

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

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

Partnership allocations

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

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

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

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

Parts III – VIII: Chapter 3 Status Certifications

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

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

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

Parts IX – XXVI: Chapter 4 Status Certifications

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

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

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

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

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

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

Entities Providing Certifications Under an Applicable IGA

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

determine that the certification accurately reflects the status for chapter 4 purposes or under an applicable IGA; and
the withholding agent provides a written statement that it has provided the certification to meet its due diligence requirements as a participating FFI or registered deemed-compliant FFI under an applicable IGA.

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

Entities Providing Alternate Certifications Under Regulations

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

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

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

Final Statement of Certification

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

Expiration of Form W-8IMY

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

Change in circumstances.

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

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

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

Part XXVII Sponsored Direct Reporting NFFE

Lexis Guide to FATCA Compliance – 2015 Edition

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

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

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

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

11 health insurance tax facts a taxpayer needs to know about

Posted by William Byrnes on June 24, 2014

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

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

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

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

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

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

6. How is personal disability income coverage taxed?

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

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

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

Big Law Ramps Up Hiring

Posted by William Byrnes on June 23, 2014

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

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

Do you Owe a Health Care Coverage Penalty for 2014?

Posted by William Byrnes on June 20, 2014

Deadline to Enroll has Passed

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

Did Enough Healthy People Enroll to Pay for The System?

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

But What About the Medicaid Expansion?

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

How Will This Be Paid For?

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

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

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

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

An Example Decision Maker Deciding What to do in 2014

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

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

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

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

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

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

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

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

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

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

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

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

The IRS provided examples of minimum essential coverage:

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

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

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

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

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

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

new Form W-8IMY Instructions released June 19!

Posted by William Byrnes on June 19, 2014

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

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

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

Who Must File?

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

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

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

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

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

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

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

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

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

Chapter 3 and Chapter 4 Status

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

Partnership Allocations

Form W-8IMY

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

Question 4 of Part I requests the QI status:

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

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

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

Chapter 3 Status Certifications Parts III – VIII

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

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

Chapter 4 Status Certifications Parts IX – XXVI

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

Statement of Certification

Structure of New Form Form W-8IMY

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

Chapter 3 Status Certifications

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

Chapter 4 Status Certifications

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

Practical Compliance Aspects of FATCA and GATCA

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

6 Tax Facts About the Additional Medicare Tax

Posted by William Byrnes on June 19, 2014

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

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

2. The threshold amounts are:

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

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

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

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

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

IRS Examples:

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

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

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

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

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

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

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

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

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

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

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

Posted by William Byrnes on June 18, 2014

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

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

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

He then announced two sets of actions:

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

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

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

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

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

50% Penalty

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

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

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

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

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

Description of the Streamlined Procedure

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

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

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

Eligibility

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

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

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

Compliance Risk Determination

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

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

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

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

Instructions for Using This Procedure

Taxpayers wishing to use these streamlined procedures must:

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

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

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

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

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

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

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

5. Submit a complete, accurate and signed Questionnaire.

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

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

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

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

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

9. The documents listed above must be sent to:

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

Other Considerations

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

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

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

Posted by William Byrnes on June 18, 2014

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

Posted in Courses | Leave a Comment »

8 Tax Facts about Penalties for Late Filing and Paying Taxes

Posted by William Byrnes on June 18, 2014

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

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

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

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

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

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

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

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

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

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

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

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

Posted by William Byrnes on June 17, 2014

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

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

STATES

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

OTHER

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

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

Practical Compliance Aspects of FATCA and GATCA

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

Updated FATCA GIIN List of FFI Registrations by Country and IGA

Posted by William Byrnes on June 16, 2014

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

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

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

FFI Registration Among Model 1 IGAs and the Rest

BRIC Registration

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

NAFTA Registrations

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

Major OECD Countries Registrations

The United Kingdom (6,263) Revenue has recently announced that it will not adopt the IRS issued six-month extension (until December 31, 2014) for entity accounts (see my articles of May 5^th and 2^nd). Thus, from July 1st, UK FFIs must document all personal and entity accounts under the requirements for “new” accounts as opposed as to “pre-existing” account due diligence procedures.

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

European Financial Centers Registrations

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

Caribbean Financial Centers Registrations

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

State of Palestine Registrations

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

North Korean Registrations

“Other” Registrations

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

Edelweiss has posted his research on the UK’s 6.263 registered FFIs (under comments to another one of this blog’s articles). I think his research bears repeating in this article. By example, he reviewed the list by GIIN and determined that about 1% of the global sign-ups of the June 2nd GIIN list are affiliated with AXA SA, the French financial services firm.

He then compares the 6,263 entities registered from the UK with the HMRC estimate (pg. 4) of 75,000 impacted FFIs (down from 300,000 prior to the IGA), finding that less than 10% of UK FFIs registered for the June GIIN list. Either the HMRC estimated horribly wrong, or most UK FFIs are still undertaking initial FATCA preparation (relying on the October 25th registration deadline imposed by HRMC instead).

The UK list is dominated by fund management firms and their various funds, private equity and the plethora of feeder funds investment trusts and quite a few trusts. Bridgepoint, a small UK private equity firm, has 72 entities (globally), while 3i, a similarly small UK private equity firm, has 45 entities (globally).
There are quite a few entities that appear to have names suggesting they are part of a private equity holding company structure. I presume they have an affiliation with a US private equity shareholder. Globally, there are 26 mentions of “Bidco”, 157 of “Holdco”, 37 “Midco”, 44 “Topco”, 144 “Acquisition”, 156 “Mezzanine” (not exclusively private equity, also specialty finance like mezz funds).
I found 321 instances of “LLP” and “265″ instances of partnership
I found 16 “deceased” and 33 “will trust”

Three Questions raised by Edelweiss

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

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

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

Qualified Credit Card Issuers

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

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

Practical Compliance Guide for FATCA

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

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Professor William Byrnes (Texas A&M University School of Law)

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

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

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GIIN

FINm

CountryNm

Error Type

A5XSJ3.99999.SL.180

RAWBANK Sarl

CONGO, DEMOCRATIC REPUBLIC OF THE

Wrong ISO3166-1 (last 3 digits of the GIIN) s/b 178

DQANI4.00007.ME.999

NLB Prishtina sh.a., Prishtina

OTHER

“Other” is not a legal jurisdiction

D52QRM.99999.SL.999

IFC Catalyst Fund /Japan/, LP

OTHER

“Other” is not a legal jurisdiction

EMI585.99999.SL.999

INTERNATIONAL BANK ECONOMIC CO-OPERATION

OTHER

“Other” is not a legal jurisdiction

EUJ5WN.00007.ME.999

GRAWE Kosova J.S.C.

OTHER

This may not be an error; GIIN ends in 999 but Kosovo has no ISO 3166-1 Code

FTMA0U.00005.ME.178

UBA Congo Brazzaville SA

CONGO

Wrong ISO3166-1 (last 3 digits of the GIIN) s/b 180

F505Q5.99999.SL.999

IFC Catalyst Fund, LP

OTHER

“Other” is not a legal jurisdiction

F8DB0C.00011.ME.180

Banque Inter. de Credit

CONGO, DEMOCRATIC REPUBLIC OF THE

Wrong ISO3166-1 (last 3 digits of the GIIN) s/b 178

GMPXWL.00013.ME.999

SIGAL…

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Comments from my 2010 lecture on tax elasticity of deposits

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