U.S. law will significantly increase certain penalties related to information reporting

The Trade Preferences Extension Act of 2015 (Link) was recently signed into law in the United States, providing substantial increases in penalties for failure to timely file information returns (e.g., Forms 1099 series, Form 1042-S, among others) with the Internal Revenue Service (IRS) and failure to furnish payee statements under Internal Revenue Code (IRC) Sections 6721 and 6722. These penalties have remained unchanged since they were last increased in 2010. The increased penalties apply to information returns and payee statements required to be filed or furnished after 31 December 2015. Changes to the penalty structure are summarized in the following table. Lower penalties apply for filers with annual gross receipts of less than $5 million:

penalties 2

Legislation enacted in 2010 implemented provisions to adjust the penalty for inflation every five years. Prior to the increase in 2010, the information reporting penalties had not been changed since 1989.

Observation: The combined maximum penalties for failure to file and failure to furnish are being increased significantly from $3 million to $6 million. Due to the increased penalty amounts, taxpayers who may have in the past opted to pay these penalties may now want to take steps to have these penalties abated and perform the necessary reporting going forward. When requesting a penalty abatement, taxpayers must establish that the failures were due to reasonable cause and not willful neglect (e.g., they must demonstrate a history of tax compliance, good faith efforts to immediately rectify noncompliance, etc.).

In the last 10 years there have been many changes and additions to the information reporting requirements. These changes have included additional requirements pursuant to the Foreign Account Tax Compliance Act and Merchant Card Reporting under IRC Section 6050W, among others. The increased penalties are yet another indication of the government’s focus on information reporting. It has been well publicized that the IRS budget has been significantly decreased over the past five years. The budget reduction requires the IRS to rely on more efficient methods to maintain taxpayer compliance. Third-party information reporting has been proven over the years to significantly improve taxpayer compliance. IRS studies have shown that, where there is third-party information reporting, taxpayer’s compliance is well over 90%.

Link to PwC Tax Insights

Inland Revenue Department of Malta extends FATCA reporting deadline and offers additional guidance

On 2 July 2015, the Inland Revenue Department (“IRD”) of Malta announced that the deadline for FATCA reporting has been extended to 31 July 2015 (Link).  Maltese Financial Institutions are reminded that they are required to submit their reports, including nil reports, by this date. In addition, the Commissioner for Revenue published an updated version of the FATCA Guidelines (Link).

The IRD has recently published the updated Guidelines for the implementation of the FATCA Agreement and the FATCA regulations in Malta. This update was triggered by the need to have further clarification on the interpretation of the FATCA Agreement in the context of particular entities, business activities or financial accounts.

Initial observations of the amendedments with the most impact are highlighted briefly below:

  • An update to the definition of “Holding Companies” and “Treasury Centres”;
  • Clarification on the correct classification of trusts under the FATCA agreement (with reference to the Investment Entity and the Custodial Institution definitions);
  • An update to the definition of Custodial Institution;
  • Further explanation and clarification of what constitutes an Investment Entity and how particular Maltese companies may be classified as Passive non-financial foreign entities (NFFEs) subject to certain conditions;
  • Clarification on nominee arrangements in relation to the concept of “Related Entity”;
  • An update to the definition of Controlling Persons in the context of FATCA – this is of particular interest to those entities that have been classified as Passive NFFEs;
  • Further updates on aggregation rules applicable and certain aspects of FATCA due diligence; and,
  • Further guidance on the practicalities of FATCA Reporting in Malta.

Link to PwC Alert

HMRC releases information on notification requirements for reporting UK institutions

On 8 July 2015, HM Revenue & Customers in the UK released a notification to  for “Financial institutions, tax advisers and other professionals that may be aware of, or have given advice in respect of, an offshore account (Link).  The general description of the measure is cited as follows:

  • The UK will begin to receive information on offshore accounts in 2017 and at the same time will begin to share information with other tax authorities on accounts held in the UK. This will allow HM Revenue and Customs (HMRC) and other tax authorities to check that the right amount of tax is being paid on money held abroad.
  • HMRC will open a time-limited disclosure facility in early 2016 to allow non-compliant taxpayers to correct their tax affairs under certain terms before HMRC start to receive data under the Common Reporting Standard. This new facility will be on tougher terms than the previous offshore disclosure facilities HMRC have operated.
  • If non-compliant taxpayers continue to conceal their tax affairs, HMRC will enforce tough penalties for offshore evasion through the existing offshore penalty regime, new civil penalties for tax evaders and the new simple criminal offence for failing to declare taxable offshore income and gains.

India signs the MCAA for the Common Reporting Standard

On 3 June 2015, the Ministry of Finance of India released a statement on the signing of the Multilateral Competent Authority Agreement (“MCAA”) on Automatic Exchange of Financial Account Information (Link).  India has signed as an “Early Adopter” with reporting beginning in 2017.  Currently, there are 61 countries listed by the OECD as signatories to the MCAA (Link).

India issues FAQs on the Black Money and Imposition of Tax Act, 2015

On 6 July 2015, the Department of Revenue of the Government of India released clarifications on tax compliance for undisclosed Foreign income and assets (Link) in the form of frequently asked questions. There are 32 questions and answers to help taxpayers and financial institutions understand their responsibilities under the Black Money and Imposition of Tax Act, 2015.

Brazil passes IGA legislation with reporting deadline set for 15 August

On 25 June 2015, the Brazilian Congress enacted Legislative Decree 146, approving the agreement with the United States (Link) concerning enforcement of the Foreign Account Tax Compliance Act (FATCA), which provides a basis for the exchange of account information from financial institutions between the United States and Brazil.

On 3 July 2015, the Brazilian Secretary of Federal Revenue issued Normative Instruction (NI) No. 1,571/2015 (Link – Portuguese), which requires filing of certain information of financial transactions. The NI enables the collection of relevant information required under the Intergovernmental Agreement (IGA) between Brazil and the U.S. Below we summarize some of the most relevant aspects included in the NI:

e-Financiera filing: This is the new electronic filing which FIs must file with the Federal Revenue Secretary including the relevant reportable information. For this purpose, FIs will have to upload the e-Financeira filing to the mandatory electronic bookkeeping and tax file (“ECD”, for its Portuguese acronym)—which was recently implemented.

Reporting FIs: The e-Financeira filing must be filed by:

  • Entities
    1. that are authorized to structure and offer complementary retirement benefits plans;
    2. that are authorized to establish and administer individual retirement funds (“FAPIs”, for its Portuguese acronym); or
    3. whose core or non-core business includes taking, intermediating or investing financial assets, including so-called “consorcio” transactions, in Brazilian or foreign currency; or the custody of third party’s securities.
  • Insurance companies that are authorized to structure and offer insurance plans to individuals.

Additionally, the NI also establishes who is responsible for providing relevant reportable information for the e-Financeira filing, such as fund administrators, custodial institutions, “consorcio” administrators, among others.

Reportable information: FIs are required to report, among other information, the balance of a depositary or investment account on the last business day of a reporting year; name, nationality, address, and tax residency of the accountholder(s). The reportable information increases gradually every year, and beginning on calendar year 2016 it will be extremely detailed and extensive.

Due date:  In general, reportable information should be reported semi-annually:

  • by the last business day of February, with respect to the period July – December of the preceding calendar year; and
  • by the last business day of August, with respect to the period January – June of the current year.

However, in the case of reportable information for the calendar year 2015, the e-Financeira filing may be filed by the last business day of May 2016.

Attention: Exceptionally, for purposes of the IGA, the e-Financeira filing must be made by 15 August 2015 with respect to reportable information corresponding to the period July – December of calendar year 2014.

Penalties: Failure to file the e-Financeira by the due date or otherwise filing incorrect, inexact or incomplete information may result in penalties equal to (a) $5 thousand Brazilian Reais for month or fraction thereof in case of failure to file and (b) an amount of up to 3% of a relevant transaction or operation in case of filing incorrect, inexact or incomplete information. The penalties may be doubled where a notice of assessment is issued by the tax authority.

DIMOF filing: Beginning 1 January 2016, the financial transactions return (DIMOF, for its Portuguese acronym) will no longer be required to be filed.

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