IRS posts new and updated FAQs to IDES Technical FAQs and FATCA General FAQs

On August 19, 2015, the IRS posted an updated FAQ to the IDES Technical FAQs web page. This FAQ addresses how Host Country Tax Authorities (“HCTAs”) and filers can ensure that their DocRefIDs are unique across all reporting financial institutions. DocRefIDs are identifiers required to be included as a data element in all FATCA XML reports. The IRS has provided a new format for DocRefIDs, required to be used starting January 1, 2016, that will ensure uniqueness. Additional information on this new format is provided on the XML Schemas Best Practices for Form 8966 DocRefID web page, updated in conjunction with the posting of the updated FAQ.

On August 25, 2015, the IRS also posted one new and two updated FAQs to the FATCA General FAQs web page. These three FAQs address how branches in Model 1, Model 2, and non-IGA countries can satisfy their FATCA registration requirements. The two updated FAQs were amended to clarify that branches must register as branches of their owners rather than as separate entities absent an exception. The new FAQ provides instructions for branches that incorrectly registered as separate entities to correct their registrations.

IRS releases updated FATCA IDES and FATCA Metadata XML Schema v1.1 User Guides

On August 13, 2015, the IRS announced that it released updated versions of the FATCA IDES User Guide and the FATCA Metadata XML Schema v1.1 User Guide. The new version of the IDES User Guide includes a page on adding or changing administrators on accounts, a section on IDES color-coded alerts, and content revisions regarding metadata files. Financial Institutions, Direct Reporting Non-Financial Foreign Entities, Sponsoring Entities, non-GIIN filers, and Host Country Tax Authorities (hereinafter “IDES Users”) should consult this guide for assistance with access and use of IDES for FATCA reporting.

The new version of the FATCA Metadata XML Schema v1.1 User Guide outlines new data elements in the metadata schema and includes new metadata sample files for illustrative purposes. IDES Users should consult this guide for assistance with preparation and validation of the IDES metadata file used in FATCA reporting.

IRS posts information on sponsored entity GIIN registrations and adds new FAQ to FATCA General FAQs

On August 12, 2015, the IRS posted information on sponsored entity GIIN registrations on the FATCA Online Registration System: Information for Adding Multiple Sponsored Entities Using a File Upload web page, announcing a new feature that will be added to the FATCA Online Registration System. This new feature will allow sponsoring entities to apply for GIINs on behalf of sponsored entities and sponsored subsidiary branches, and it will facilitate submissions of files with multiple records (i.e. “bulk submissions”). These files will be in XML format and in accordance with the FATCA Registration Sponsored Entity XML Schema; the hyperlinks to the schema and the instructions for upload are both provided on the web page. The bulk submission feature will be added to the FATCA Online Registration System in late 2015, in time for the December 31, 2015, deadline for sponsored entities to obtain their own GIINs.

FAQ addressing electronic receipt of Forms W-8

On August 14, 2015, the IRS announced that it added a new FAQ to the FATCA General FAQs web page under the “General Compliance” section. This new FAQ addresses whether a Form W-8 is considered to be received electronically by a withholding agent under the relevant U.S. Treasury Regulations (Treas. Reg. §1.1441-1(e)(4)(iv)(C) and §1.1471-3(c)(6)(iv)) where the form is provided via a link to a third-party repository site for download. The response provides that the Form W-8 is considered to be received electronically as long as the withholding agent does not have reason to know that the link was transmitted by someone other than the payee or the payee’s agent. The form is considered to be furnished by the payee, and the withholding agent is still obligated to validate the form and consider any changes in circumstances.

IRS updates FATCA IDES web pages, including IDES Technical FAQs and XML Schema Best Practices

On August 10, 2015, the IRS announced that it updated the IDES Resources, IDES Testing Schedule, and FATCA XML Schema and Business Rules for Form 8966 web pages. The IDES Resources page links to numerous tools and resources to assist users with each step of the IDES process for FATCA filing. The IDES Testing Schedule page provides dates, times, and instructions for participation in IDES testing sessions. The FATCA XML Schema and Business Rules for Form 8966 page outlines and links to guidance for the FATCA XML schemas used for reporting, sender metadata files, and notifications..

The IRS also updated the FATCA IDES Technical FAQs web page, adding two new FAQs and updating two others. The first new FAQ addresses the prospect of an updated XML Schema for FATCA Reporting for 2015, stating that a new schema will not come out for Tax Year 2015 but that feedback will be considered for planned changes for Tax Year 2016. The second new FAQ answers how to identify and correct the error causing a “CF acknowledgement message,” an error message generated when using an invalid digital certificate. The two updated FAQs address XML character restrictions. Finally, the IRS updated the FATCA XML Schema Best Practices web page, which provides guidance on prohibited characters that will cause file rejections and error notifications if included in FATCA XML documents.

OECD publishes three new reports to assist with global CRS implementation

On August 7, 2015, the OECD published a Handbook, an Update for the Voluntary Disclosure Programmes, and a Protocol. These documents are meant to assist governments and financial institutions that are implementing the Common Reporting Standard (“CRS”). CRS is a standardized exchange model that builds off of the information exchange foundations established by FATCA.

The Handbook is a practical guide for the implementation of CRS, providing an overview of required steps, as well as the due diligence requirements. It also provides a detailed comparison of CRS with the FATCA Model 1 IGA, and CRS-related FAQs. The Handbook is a useful reference for governments, practitioners, industry members, and/or those unfamiliar with CRS as it provides both insightful overviews and significant detail.

The Update on Voluntary Disclosure Programmes is a guide to establishing and successfully executing voluntary compliance and disclosure programs to facilitate self-identification and reporting of non-compliant taxpayers. This second edition of the guide provides significant detail on the voluntary disclosure programs for 47 jurisdictions, thus enabling other jurisdictions to draw from practical experience in designing and implementing temporary and permanent voluntary compliance and disclosure programs.

The Protocol is a model contractual template for use by jurisdictions with Tax Information Exchange Agreements (“TIEAs”) in place that wish to leverage their pre-existing TIEA to establish a legal basis for automatic information exchange.

Luxembourg Law Transposing IGA and Circular Letters Published

After having been voted on July 1, 2015, the Luxembourg law of July 24, 2015 transposing the Luxembourg-US IGA (“the Law”) was promulgated, and published on July 29, 2015.

Amendments to the initial version of the draft Law already had been proposed in June 2015 by the Finance and Budget Commission, in particular in order to more appropriately cover data protection aspects in the text of the law.

In addition, the Luxembourg tax authorities released the final versions of Circular Letters ECHA 2 and ECHA 3 on July 31, 2015. Circular Letter ECHA 2 explains the legal obligations of Luxembourg Reporting Financial Institutions (RFI). Circular Letter ECHA 3 contains the technical details of the reporting format to be used between Luxembourg and the US. The Circular Letters update earlier draft versions.

The following summarizes certain points of the Law and the Circular Letters:

  • Flexibility to opt for IGA or Regulations principles: The Law, as well as Circular Letter ECHA 2, reconfirm certain principles of the Luxembourg-US IGA (such as the option to apply the definitions of the U.S. FATCA Regulations instead of the definitions in the IGA).
  • Classification of Luxembourg entities: Circular Letter ECHA 2 provides guidance on the classification principles to be applied to Luxembourg SOPARFIs, SPF, and securitization vehicles.
  • US indicia and changes in circumstances: Circular Letter ECHA 2 provides useful examples of how the detection of US indicia should be handled, how changes in circumstances after year-end may impact the status of an account, and as from when (and for which reportable period) an account becomes a reportable US account, respectively, ceases to be a reportable US account. This Circular also details how the closure of accounts should be approached in respect of classification of the holder and reporting.
  • No registration with the Luxembourg tax authorities: Under the Law, there is no requirement to register with the Luxembourg tax authorities. However, Circular Letter ECHA 3 requires a third party service provider that will act as a data depositor to have a Luxembourg matriculation number (in the absence of such number, this can be obtained from the Luxembourg tax authorities).
  • Deadline for reporting and zero reporting: The Law stipulates that the annual reporting deadline is June 30 of the year following the calendar year the reporting is related to. As announced earlier, the deadline relating for the 2014 reporting was, after having been postponed to July 31, 2015, further postponed to August 31, 2015. Relevant 2014 data is filed through E-File operated by Fundsquare or SOFiE operated by Cetrel. Action is required as setting up the secured data channel in practice generally takes one week, and reportable persons need to be informed sufficiently in advance in respect of their data protection rights (see below). Also note that the Luxembourg tax authorities require zero reporting in the absence of reportable accounts. As an exception to this rule, Circular Letter ECHA 2 stipulates that a Sponsoring Entity does not need to file a zero report for a Luxembourg Sponsored Entity provided the latter does not have any reportable US accounts, and as long as the Sponsored Entity does not have its own GIIN.
  • Data protection – information obligations: The Law explicitly mentions that RFI are data controllers within the meaning of the data protection Law of August 2, 2002. The Law obligates an RFI to inform any reportable person in advance of the data transmission to the Luxembourg authorities that personal data relating to this person will be collected and transferred in application of the Luxembourg-US IGA. Furthermore, the Law specifies which elements need to be part of this communication (such as the fact that the RFI is a data controller, that the data concerned will be reported to the Luxembourg authorities, and that the latter will transmit this data to the US, that the person concerned is obliged to respond to queries of the RFI in respect of FATCA, and the consequences of not responding, and that the person concerned has the right to access and rectify the data transmitted). The RFI should also ensure that the data collected is not stored during a period longer than necessary for the purposes of applying the Luxembourg-US IGA, or other statute of limitation that may apply. Additionally, both the Luxembourg tax authorities and any RFI are obligated to inform reportable persons on any security breach related to this data in case this security breach could harm the individual’s personal data protection or private life. RFI will need to ensure that these obligations are appropriately exercised, sufficiently in advance of the reporting due on August 31, 2015, at the latest.
  • Tax audits and sanctions: The Law explicitly mentions that the Luxembourg tax authorities will verify the procedures put in place by financial institutions to meet the automatic exchange of information obligations under the Luxembourg IGA, and the reasonable diligence applied in respect of these obligations. Additionally, the Law mentions that Luxembourg tax authorities will in particular verify whether financial institutions did not implement mechanisms to circumvent the exchange of information taking place. Circular Letter ECHA 2 contains an illustrative example of such avoidance (a financial institution immobilizes its bearer securities with a depository institution that is not a reporting financial institution).The Law also contains the sanctions framework. On the one hand, where reasonable diligence obligations would not be met, or exchange of information mechanisms would not have been sufficiently implemented, an RFI could incur an administrative fiscal fine of maximum 250.000€. On the other hand, in case reporting obligations would not have been met, or in case of late, incomplete or incorrect exchange of information, an RFI would be exposed to an administrative sanction of 0,5% of the amounts that should have been communicated, with a minimum of 1.500€. Additionally, as RFI are data controllers under the above-mentioned data protection Law, administrative sanctions could be imposed by the National Data Protection Commission, and specific criminal law sanctions foreseen in this Law could apply as well (generally, imprisonment up to 1 year and fines up to 125.000€).

IRS Posts New FATCA IDES Technical FAQs

On July 28, 2015, the IRS announced that it updated three International Data Exchange Service (“IDES”) FAQs to the FATCA IDES Technical FAQs website. The first updated FAQ addresses the process for a Sponsoring Entity in a Model 1 IGA jurisdiction to report on behalf of its sponsored entities in Model 2 and non-IGA jurisdictions through IDES. The second addresses restricted characters in submitted XML documents due to the XML syntax rules. The third addresses recommended encryption software for signed XML files.

In addition to the Technical FAQ updates to assist with technical issues, the IRS warned that there is an error on the FATCA XML Schema Best Practices webpage related to the inclusion of entity references in FATCA XML documents. The FATCA XML schema reference documents will be updated to reflect the entity name restrictions, and the updated FAQs address the issue at present.

Luxembourg Extends FATCA Reporting to August 31, 2015

Luxembourg signed a Model 1 IGA on March 28, 2014. On March 27, 2015, the Draft Law (n°6798) implementing the IGA as local law was released. Under local Luxembourg law, the first FATCA reporting was to be completed by June 30, 2015.

After having announced an extension of the first filing deadline to July 31, 2015, the Luxembourg Tax Authorities announced on July 24, 2015, that an additional one month extension would be granted. Thus, the first reporting deadline will be August 31, 2015.

IRS Legal Advice Holds that Information Protection Arises at IDES Upload

The National Office of the Office of Chief Counsel has issued AM-2015-005 analyzing when legal responsibilities to protect tax return information arise in the context of electronic data transmission through the International Data Exchange Service (IDES). Such legal advice is issued to IRS personnel to assist them in administering their programs by providing authoritative legal opinions on certain matters.

In this case, the National Office concluded that section 6103 protection arises on the inbound transfer of information at the time that the information is uploaded to IDES rather than at the time the IRS downloads the information from IDES. Uploading of tax information to IDES by FFIs and other non-HCTAs (Host Country Tax Administrations) is covered by section 6103. The National Office stated that it understood that the IRS would likely act as if the information were protected at upload. Similarly, under section 6105 which pertains to tax convention information (i.e., information provided by HCTAs), the National Office concluded it was likely that a court would be persuaded that treaty protection should harmonize with domestic law under section 6103. Thus, the protections of section 6105 would arise at upload to IDES.

Irish CRS FAQs Added

Ireland has provided a set of FAQs under the Common Reporting Standard (CRS). The FAQs have been added to the Summary of Global Information Reporting. The following table, provided in the FAQs, summarizes the implementation options for Ireland.

1.Alternative approach to calculating account balances No
2.Use of reporting period other than calendar year No
3.Phasing in the requirements to report gross proceeds No
4Requirement to file nil returns Yes
5.Allowing third party service providers to fulfil obligations for FIs Yes
6.Allowing due diligence procedures for New Accounts to be used for Pre-existing Accounts Yes
7.Allowing the due diligence procedures for High-Value Accounts to be used for Low-Value Accounts Yes
8.Residence address test for Lower Value Accounts Yes
9.Threshold of $250,000 for Pre-existing Entity Accounts Yes
10. Simplified due diligence rules for Group Cash Value Insurance Contracts and Group Annuity Contracts Yes
11. Allowing greater use of existing standardised industry coding systems for the due diligence process Yes
12. Permitting a single currency translation rule Yes
13. Expanding definition of Pre-existing Account when pre-existing customers open a new account Yes
14.Expanded Related Entity definition Yes
15.Grandfathering rule for bearer shares issued by Exempt Collective Investment Vehicle Yes

In addition, FAQ 2 provides that Financial Institutions (FIs) may adopt the “wider approach” for CRS. This will allow institutions to collect data relating to the country of residence and the Tax Identification Number (TIN) from all non-resident customers, not only residents of jurisdictions with which Ireland has an exchange of information agreement. FIs can send data for all non-resident customers to the Revenue Commissioners who will determine whether the country of origin is a participating jurisdiction, and if so exchange data with them. Revenue will delete any data for non-participating jurisdictions.

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