U.S. QI: Effective Date of Certain Dividend Equivalent Regulations Postponed

Last week, there were developments regarding the highly anticipated section 871(m) regulations and updates to the notional principal contract (“NPC”) regulations.  These developments signal that the IRS and Treasury are continuing to work on guidance regarding swaps and further guidance can be expected over the coming months.

Most significantly, officials from the Treasury Department announced that the regulations fully implementing the new section 871(m) regime will be delayed at least another year, so the new rules will not be effective prior to 1 January 2017.  The December 2013 proposed regulations had promised a 1 January 2016, effective date.  The section 871(m) regulations are still expected to create a new tax (and withholding) regime that would ensure that foreign investors in most derivatives over U.S. dividend-paying stocks cannot get a better tax (and withholding) result from gaining economic exposure to the dividend-paying stock through a derivative than they would have gotten had they invested directly.

PwC Insight: While the deferral of the proposed regulations are welcomed, the smaller set of final section 871(m) regulations issued in December 2013, relating to specified notional principal contracts, will be  effective for payments made on or after 1 January 2016.  Absent an announcement from Treasury pushing these regulations back to 1 January 2017, this will require dealers and market participants to create systems within the next 6 and a half months to comply with section 871(m)(3)(B) and final regulation 1.871-15(d).

The Seychelles and Ghana sign the MCAA

On 14 May 2015, the Seychelles and Ghana have signed the Multilateral Competent Authority Agreement (MCAA) bringing the total number of participating jurisdictions which have signed the MCAA to 54 (Link).  The Seychelles intends to implement the Standard in time to begin the exchange of information in 2017, with Ghana intending to begin the exchange of information in 2018.

Austria issues draft CRS guidance

On 12 May 2015, the Federal Ministry of Finance (Bundesminiserium für Finanzen) in Austria released a Draft Law (Link – German) and Notes (Link – German) on the implementation of the Common Reporting Standard on the basis of the European Union Directive 2014/107/EU from 9 December 2014 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.  New account opening procedures would need to be in place by 1 October 2016 with the first reporting occurring in 2017 (for new accounts opened in 2016) based on the draft guidance.

Revised timeline for Cayman Reporting Financial Institutions

On 11 May 2015, in response to continued system development and ongoing maintenance issues, the Cayman Department for International Tax Cooperation (DITC) issued an update (Link) revising the timeline for Cayman Reporting Financial Institutions. Under the new guidance, Cayman Reporting Financial Institutions must complete the required notification and FATCA year-end reporting by Thursday, 21 May and Friday, 12 June respectively. The update is expected to provide flexibility to the financial services industry in satisfying its FATCA reporting requirements under the terms of the U.S-Cayman Islands FATCA IGA.

Polish President signed a bill to ratify the Poland – U.S. IGA

On 4 May 2015, President Bronislaw Komorowski signed a bill ratifying the agreement with the United States concerning enforcement of the Foreign Account Tax Compliance Act (FATCA), which provides a basis for the exchange of information about income and accounts of tax residents between the United States and Poland.  The implementation process has not been finalised as the bill implementing the IGA (which is different from the bill on ratification) is still within the legislative process.

OECD Convention on Mutual Administrative Assistance in Tax Matters soon to be implemented into German law

On 1 May 2015, the German government submitted a draft bill to the German Bundesrat for the implementation of the OECD Convention on Mutual Administrative Assistance in Tax Matters from 25 January 1988 and the amending protocol from 27 May 2010 into German law (Link). Accordingly, the legislative procedure has been initiated. It is very likely that the convention and the protocol will soon become binding German law, allowing a wide number of states to obtain the benefits of a cross-border cooperation in tax matters.  The draft bill aims at the fight against tax evasion, the avoidance of double taxation and ensures a fair and simplified cooperation regarding cross-border tax collection or enforcement of tax demands. At the same time, the Convention and the Protocol allow for revisions to the standards of local law, especially with regard to data protection rights.

In addition, the draft bill covers administrative assistance, e.g. exchange of information, including simultaneous tax examinations and participation in tax examinations abroad. Article 6 of the Convention allows an automatic exchange of information based on predefined categories which would be determined by mutual agreement between two or more parties. The Competent Authority Agreement, as part of the OECD Common Reporting Standard Initiative, could be such mutual agreement. However, it is yet unclear how this potential new law will interact with other treaties, for example with the FATCA Intergovernmental Agreements, or the EU Directive 2014/107/EU regarding mandatory automatic exchange of information in the field of taxation from 9 December 2014.

IRS Planned Maintenance

Due to planned maintenance, the FATCA International Data Exchange Service (IDES) will be unavailable from 13:00 Eastern Daylight Time (EDT) (UTC/GMT -4) on Saturday, 23 May 2015 until 16:00 EDT on Monday, 25 May 2015 due to an annual power outage.

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