On 28 October 2015, the European Union signed an agreement on the automatic exchange of financial account information with Liechtenstein (Link). This Treaty is aimed at improving international tax compliance and combatting tax evasion and tax fraud. The first automatic exchange of information will take place in 2017 for information collected in 2016.
On 9 November 2015, Angola signed a Model 1 Intergovernmental Agreement (“IGA”) with the United States of America to improve international tax compliance and to implement FATCA (Link).
On 5 November 2015, the Mexican Tax Authorities (Servicio de Administración Tributaria or SAT) announced a temporary reopening of their FATCA reporting system for a period of three days from 9 November 2015, enabling the SAT to receive overdue FATCA reports.
This means that financial institutions that were not able to report by the FATCA reporting deadline on 15 September 2015, will have a short period to comply with outstanding FATCA reporting obligations.
The announcement by the SAT includes certain restrictions on the conditions under which this reporting facility will be available, including:
- The financial institution must already have registered and obtained its reporting certificate(s);
- The financial institution must inform the SAT of its intention to use this reporting window;
- The financial institution was not able to submit reports by 15 September 2015.
It’s important to note that the facility will not be available to those financial institutions that wish to submit supplemental or amended FATCA reports.
If you were not able to fulfill all of your FATCA reporting obligations by 15 September 2015 or would like to discuss what this new announcement could mean for your institution in more detail, please get in touch with our experts.
Karina Perez Delgadillo
On 5 November 2015, the Internal Revenue Service (“IRS”) released the final Form 8938 for 2015 (Link) and instructions on how to complete the form (Link). Form 8938 should be filed by specified individuals with interests in specified foreign financial assets where the value of those assets meet or exceed the reporting threshold. Therefore, this reporting should be the responsibility of the account holder, and not the institution in which the account is held (i.e. Form 8966 or similar financial institution reporting in IGA countries). This form should be attached to a filers annual tax return and filed by the due date, including extensions, for that return (e.g. Form 1040, Form 1040NR)
The draft form was released in October (previous blog coverage).
On 3 November 2015, the Internal Revenue Service (“IRS”) released an early draft Form 1042-S for 2016 including instructions on how to complete it (Link). This form should be used by foreign persons to report U.S. source income subject to withholding (Link). Penalties for failure to timely file (Link) and failure to furnish (Link) have recently been significantly increased.
Link to US Tax Insights
On 3 November 2015, the U.S. signed a Competent Authority Arrangement (“CAA”) with Luxembourg (Link) in accordance with the IGA signed between these jurisdictions (Link). In general, a Competent Authority Arrangement is a bilateral agreement between the U.S. and a treaty partner to clarify or interpret treaty provisions (Link). These CAAs establish the procedures for the automatic exchange obligations and for the exchange of information between these jurisdictions.
On 3 November 2015, the President of Azerbaijan approved the IGA signed with the U.S. in September (Link).
On 28 October 2015, San Marino signed a Model 2 Intergovernmental Agreement with the United States of America to improve international tax compliance and to implement FATCA (Link).
On 03 November 2015, the German Ministry of Finance (“BMF”) released a circular on FATCA implementation guidance (Link – German).
On 31 May 2013, the Federal Republic of Germany and the United States of America entered into an intergovernmental agreement [“German-US IGA”] (Link) to improve International Tax Compliance and with respect to the United States Information and Reporting Provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). This agreement regulates the automatic exchange of the tax related information, which should be obtained from Financial Institutions (FIs), in an effort to increase international tax compliance. Pursuant to § 117c of the German Fiscal Code (Abgabenordnung – AO), the BMF enacted the German-US FATCA implementation regulation (FATCA-USA-UmsV dated 23 July 2014 (BGBl. I S. 1222)).
Some initial PwC observations regarding new items appearing in the final BMF-Circular in addition to those already contained in the previous draft version from the perspectives of (i) Scope and Governance; (ii) Customer Due Diligence and Documentation; (iii) Reporting; and (iv) Withholding are below:
i. Scope and Governance:
- The BMF-Circular further confirms that the term “Beneficial Owner” [wirtschaftlich Berechtigte] provided under the German Anti Money Laundering Act (GwG) can be used as the reference point for the “Controlling Person” [beherrschende Person(en)] definition for FATCA purposes (para. 169).
- 172 through 174 of the BMF-Circular provide clarification regarding Active and Passive NFFEs classification, e.g. para. 173 provides for the definition of “passive income”, while para. 174 provides certain exemptions from the “passive income” definition. Nevertheless, it is ultimately assured that active/passive classification may also be made on the basis of industry codings (paras 97, 180 and 239), provided that, for instance, such industry codes stand in reference to the NACE-Code.
- Para 175 of the BMF-Circular provides a valuable interpretation for the classification of holding companies.
- Para 141 of the BMF-Circular provides for various accounts and products that are exempted from the definition of Financial Account in addition to those listed in Annex II of the German-US IGA. Those exemptions should no longer require a mutual agreement (Verständigungsvereinbarung) with the U.S. to classify some low-risk products as exempted. Para 47, to the contrary, still contains in its title such requirement for a mutual agreement with the U.S. for low-risk exempted entities. Currently it is unknown whether the German Competent Authority already initiated or even finalized a process with the U.S. to mutually agree on the listed exemptions. Further clarification should be expected.
ii. Customer Due Diligence and Documentation
New details are given and illustrated by examples with regard to Customer Due Diligence and Documentation:
- The BMF-Circular (para. 194) provides that German Reporting FIs are permitted to collect self-certifications from the account holder even in case where no U.S. indicia are identified on the account holder.
- The BMF-Circular confirms that the self-certification may be completed by the relationship manager based on the information provided by the client. The client must, however, confirm the correctness of such information, evidenced through a signature (para. 205).
- Para 287 of the BMF-Circular provides the very much anticipated good-faith-efforts clause. Accordingly, if a German Reporting FI fulfills its due diligence obligations under the German-US IGA and the FATCA-USA-UmsV in good faith prior to the publication of the final BMF-Circular (and any Competent Authority Agreement), the German Reporting FI will be regarded as compliant even if all rules provided under the final BMF-Circular (and any Competent Authority Agreement) were not explicitly followed. The previously identified accounts and account holders do not need any re-classification until there is a change in circumstance. Any impacted procedure must be amended for the future within a reasonable time.
Additional details regarding reporting include:
- Confirmation that there is no nil reporting required in cases where there is no reportable information maintained by the German Reporting FI (para. 111).
- Confirmation that if the account was closed during the year, the account balance or value immediately before closure of the account should be reported and can be determined either as the value at the end of the previous calendar year or the value within the five last business days prior to the closure of the account (paras. 259 ff).
- Confirmation that certain new individual accounts (under the 50,000 USD threshold) are not required to be identified, reviewed or reported. In addition, the BMF-Circular confirms that Reporting German FIs will not be required to apply this threshold and related exclusion (para. 235).
The BMF-Circular makes clear that a German Reporting FI has withholding obligations only if the given German Reporting FI has QI status (para 7, last passage). In that case, withholding obligations derive from the QI Agreement, hence the German-US IGA does not establish any stand-alone withholding obligation. This confirms the previous views that withholding shall only be relevant under the individual FI’s QI, WP or WT status.
Based on recent regulatory developments in several countries (Luxembourg, the Netherlands and Slovakia), the data in PwC’s CITT Compare Tool has been updated. Please take this opportunity to re-run reports for those countries and use the latest information within your projects. In addition, a new version of the CITT Compare Tool User Guide was uploaded. The new version includes a thorough introduction to the new Voluntary Disclosure Report. Please take this opportunity to read more about the new features of the CITT Compare Tool and discover the numerous possibilities it offers. Thank you.