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.

Recent U.S. Legislation Increases Information Reporting Penalties

The Trade Preferences Extension Act of 2015, Public Law No: 114-27 (“Legislation”), which was signed into law on June 29, 2015, amends penalties applicable under IRC section 6721, Failure to file correct information returns, and IRC section 6722, Failure to furnish correct payee statements. The amendments apply to returns and statements required to be filed after December 31, 2015. These increases may impact taxpayers across all industries, not just within financial services.

Section 6721(a) imposes a penalty on the following:

  • Any failure to file an information return with the Secretary on or before the required filing date
  • Any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

Section 6722(a) imposes a penalty on the following:

  • Any failure to furnish a payee statement on or before the required filing date
  • Any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

The Legislation increases the penalties under sections 6721 and 6722 from $100 to $250 per return or statement, and the annual cap or limit on penalties per calendar year under each section is increased from $1,500,000 to $3,000,000. As such, for a filing that is both an information return for purposes of section 6721 and a payee statement under section 6722, the potential amount of penalties that could be assessed under these sections is $6,000,000.

Additionally, if the failure to file information returns or payee statements is a result of intentional disregard, the Legislation increases the penalties under section 6721 and under section 6722 from $250 per return/statement to $500 per return/statement; or, if greater, 10% of the aggregate amount required to be reported correctly.

Note that all of the above penalties are adjusted for inflation under sections 6721(f) and 6722(f).

In an effort to enforce information reporting, the IRS is taking the following actions:

  • Collecting more information about payments made on both a U.S. domestic and global basis,
  • Elevating priority of certain reporting requirements as a specialty examination issue, and
  • Making greater use of technology to identify issues or incidences of noncompliance.

IRS Taxpayer Advocate Report on FATCA Burdens

[Area of Focus #4; July 15, 2015]

In Area of Focus #4, “The IRS’s Implementation of FATCA Has in Some Cases Imposed Unnecessary Burdens and Failed to Protect the Rights of Affected Taxpayers”, Nina Olson, the IRS Taxpayer Advocate, has recommended that the IRS focus on the following in her “FY2016 Objectives Report to Congress”:

  • Update and analyze research and stakeholder concerns regarding the impact and effectiveness of FATCA;
  • Encourage the development of mechanisms, such as the “same-country exception,” to mitigate the unintended negative consequences of FATCA while perpetuating its broader goals;
  • Provide recommendations to the IRS and Treasury regarding the policies and procedures that should govern the credits and refunds of amounts withheld under Chapter 3 and Chapter 4;
  • Advocate for U .S . taxpayers experiencing significant hardship as a result of systemic Chapter 3 and Chapter 4 refund freezes and issue Taxpayer Assistance Orders (TAOs) as necessary; and
  • Work toward the development of a FATCA regime that gathers only the information actually needed by the IRS, burdens impacted parties as little as possible, and preserves the rights espoused by the IRS in the Taxpayer Bill of Rights, including the right to pay no more than the correct amount of tax and the right to privacy.

As a recommendation to help minimize the burden of FATCA compliance for both individual U .S . taxpayers and businesses, the National Taxpayer Advocate proposed the IRS and Treasury adopt a “same- country exception .” This regulatory change would exclude from FATCA coverage financial accounts held in the country in which a U .S . taxpayer is a bona fide resident . It would mitigate concerns about the collateral consequences of FATCA raised by U .S . non-residents, reduce reporting burdens faced by FFIs, and allow the IRS to focus enforcement efforts on identifying and addressing willful attempts at tax evasion through foreign accounts.    Nevertheless, to this point, the IRS has not been willing to pursue these recommendations proposed by the National Taxpayer Advocate and supported by other stakeholders.

IDES FAQs Added and Updated

[FATCA IDES Technical FAQs; July 14, 2015]

General Questions

A13. Will an API or standalone application be available to assist with data preparation?
IDES will not be providing an API or application for data encryption and transmission.  The file format has been described and the file preparation guide has been published on IRS.gov to assist users. There are currently samples of Data Preparation code available on GitHub in the IRSgov repository.

Updated  07-14-2015

A14. I am a Sponsoring Entity located in a Model 1 IGA jurisdiction.  I am responsible for reporting on behalf of entities in Model 2 and non-IGA jurisdictions.  When I attempt to enroll in IDES the system rejects my enrollment as coming from a Model 1 IGA jurisdiction.  How can I use IDES as required to submit FATCA Reports?
Note: In order to be able to use IDES ahead of the June extended deadline for submission of FATCA reports for Model 2 and non-IGA jurisdictions you will have to obtain your new GIIN by May 21, 2015.

The IRS developed a process that allows you to use IDES.  You will obtain a second GIIN that reflects that you are located in a Model 2 or non-IGA jurisdiction.

1. Enter the IRS Registration Portal and create a new account.

2. Select the Financial Institution Type, Sponsoring Entity and click Next to continue.

3. Complete other questions and proceed to Part 1, Questions 3A-4.

a. Question 3: Select Financial Institutions Country of Residence, Other.

b. Question 3B: Enter your Financial Institution’s country/jurisdiction tax ID, if available.

c. Question 4: Select the Financial Institution’s classification in its jurisdiction of tax residence, None of the Above.

4. Complete the application and other entries as you did originally.

After the approved GIIN appears on the FFI List, use the GIIN to enroll in IDES. Detailed information on IDES enrollment process can be found at https://www.ides-support.com/.

Updated:  07-14-2015

A15. What are the differences between the FATCA XML Schema v1.0 and Form 8966 for “rounding off to the whole currency amount”?
The general guidelines for rounding are the same in the instructions to Form 8966 and the schema. In the instructions to Form 8966, you may round fractional currency amounts up (or down) to the closest non-fractional (whole) currency amount. If you choose to round currency amounts, you must round all currency amounts reported. The schema defines the format of the money amount; it does not address the general accounting practices to round off to the whole amount.
The schema allows whole numbers and decimal numbers with 2 fraction digits (e.g. 12345, 12345.76 and 12345.7 are valid amounts). If an amount has more than 2 fraction digits, the amount will be invalid (e.g. 12345.768 is invalid amount).

Added:  07-14-2015

System Availability and Design

B1. When will the IDES system be accessible for HCTA, direct reporting NFFE, and/or FFI use?
IDES is designed to be “always on” and available to receive files. The system will be unavailable during planned maintenance periods. Generally, maintenance is performed on Saturdays between 6 PM and midnight EST.  Any additional outages will be announced on the FATCA IRS.gov website.

Updated:  07-14-2015

B7. When will the IDES system be accessible for testing purposes?
The IRS conducts periodic testing of IDES.  Dates for testing windows will be made available atIDES Test Schedule.

Updated:  07-14-2015

B9. How do I enroll for testing?
All those that are registered users with IDES will receive an email that provides details for the upcoming testing window. The email will include the start and end date of the window as well as the URL for that specific window. If you are an enrolled IDES user, you will be enrolled in the testing window.

Added:  07-14-2015

B10. What is the URL for accessing the test environment?
The URL is different for each testing window. The URL will be included in the email to registered IDES users alerting them of the upcoming test window.

Added:  07-14-2015

Data Format and Structure

C21. We’re receiving a Notification that there are restricted characters in our file but when we check the FATCA XML Schema (Form 8966) we don’t find any.  What is wrong?
The IRS has noted that some signature tools may insert illegal characters in the KeyInfo element when generating a signature.  If so, the KeyInfo element should be removed before submitting the package.  The package will validate without it.  Also check the updated guidance around restricted characters, referenced in FAQ C17. There has been recent change in the guidance and apostrophes, even in entity reference form,  will cause a Failed Threat Detection Notification.

Updated: 07-14-2015

Data Transmission

D12. Can we get individual confirmation that our files were received and approved by the IRS?
This will be done via the notifications. The Interim Valid File Notification (NIM) indicates that the file is in a valid format. This notification should be received within 24 hours of receiving Alert RC001 (indicating file was successfully uploaded to IDES). Once record level validation is functional, further communication will be sent if errors are detected during record processing.

Added:  07-14-2015

D13. I uploaded a FATCA Report to IDES 3 days ago and have not received a notification about the status of my FATCA Report. Does the XML format cause a problem?
The IRS has identified a specific scenario where notifications are not issued to filers when certain errors are present. A possible cause for a missing notification is XML that is not formatted and is contained on one continuous line. In this scenario, you can reformat the XML into an acceptable format using a variety of online tools, such as XML Pretty Print. The correctly formatted version of the XML can be resubmitted in a new data packet.

Added:  07-14-2015

Data Encryption and Security

E1. What type of data encryption should be used prior to XML data transmission?
A digital signature shall be applied to XML and Notification files, referred to hereafter as data files.  FATCA digital signatures use the SHA-256 hashing algorithm in conjunction with the private key for the sending party who will upload the file to IDES. The private key corresponds to the public key (RSA 2048-bit) that is stored on IDES. Following the creation of a digital signature and compression, the data file is encrypted using the AES algorithm and a randomly generated 256-bit key. The AES key is stored in a separate file and encrypted using the receiving party’s public key, which is obtained from IDES. Both the data file and the key file shall be combined into a single zip file along with a separate metadata file for transmission to IDES.

Updated:  07-14-2015

E2. What encryption standard will be implemented on the transmission path?
For the IDES web user interface, the user connects using a web browser and the HTTPS protocol, which in turn utilizes Transport Layer Security (TLS 1.2) to protect sensitive data during electronic dissemination across the Internet. Alternately, the end user can interface with IDES using SSH File Transfer Protocol (SFTP) which is based on Secure Shell (SSH) version 2.0 or higher.

Updated:  07-14-2015

E6. What are the requirements for digital certificates?
During the FFI, direct reporting NFFE, and HCTA enrollment process, the digital certificate must be uploaded to the IDES website.  IDES accepts eight digital certificate products from seven Certificate Authorities (CAs).  A list of acceptable certificate authorities and products can be found at Digital certificates.

Updated:  07-14-2015

E9. Who needs to obtain a digital certificate?
A digital certificate is required to complete the FFI, direct reporting NFFE, and HCTA enrollment process for IDES. Only the entity that prepares an encrypted file and uploads it to IDES needs to obtain an account on IDES, and therefore needs to obtain a digital certificate. The private key used to sign the XML file must correspond to the public key in the digital certificate used to enroll in IDES.

Updated:  07-14-2015

IDES Use for Entities Not Required to Obtain a GIIN

F2. How do I complete the FATCA XML Schema if I am a U.S. Withholding Agent (USWA) or Territory Financial Institution (TFI)?
If you are a USWA or TFI, you complete the FATCA XML Schema in the same manner as if you were a “ReportingFI”.  In the “TIN” data element, make sure to use your U.S. EIN (or, if you are a TFI that does not have a U.S. EIN, use the EIN used by the relevant U.S. territory tax administration to identify the TFI).

Note: For additional information, please read FAQ Q2 under the “Reporting” section on the General FAQ page.

Updated:  07-14-2015

F6. If a third party submits a package on behalf of an FI, who would receive alerts and be able to download notifications related to the payload?
The entity that submits the package will receive the alerts and notification.

Added:  07-14-2015

Return to top

F7. I am a third-party tax preparer.  The tax authorities in my country have indicated they have elected Model 1 Option 2 for FATCA Reporting.  How may I enroll to use IDES to transmit FATCA reporting information?
You can request a FATCA Identification Number (FIN) to enroll in IDES and submit FATCA Reports. If you are reporting information to a Model 1 Option 2 (M1O2) jurisdiction, you MUST obtain a FIN where the last three digits correspond to the ISO Country Code for the M1O2 jurisdiction.  If you are reporting on behalf of other jurisdictions, you should obtain a second FIN with the jurisdiction code of ‘Other’ to report for those other jurisdictions.
Please consult your local jurisdiction to determine if it has elected Model 1 Option 2 for FATCA reporting. Review the IDES Resources and FIN web pages for information about how to obtain a FIN and enroll in IDES.

Added:  07-14-2015

F8. I am a third-party tax preparer located in a Model 1 IGA jurisdiction.  I am responsible for reporting on behalf of clients in Model 2 IGA and non-IGA jurisdictions. I obtained a FIN but IDES will not accept my enrollment.  How can I enroll in IDES?
The general rule for FATCA is that reporting entities in Model 1 IGA jurisdictions do not report directly to the IRS, but instead report directly to their host country tax authority.  IDES follows the business rules of the IGAs.  In order to use IDES to report you, need to request a FIN that identifies your tax jurisdiction code as ‘Other’.  Review the IDES Resources and FIN web pages for information on obtaining a FIN and enrolling in IDES.

Added:  07-14-2015

 

 

Philippines and U.S. Sign Model 1 IGA

[News Release; July 13, 2015]

Philippines and United States Ink Agreement on FATCA

 

13 July 2015 | Manila, Philippines – Finance Secretary Cesar V. Purisima and U.S. Ambassador to the Philippines Philip S. Goldberg signed a reciprocal intergovernmental agreement (IGA) to implement provisions of the Foreign Account Tax Compliance Act (FATCA) to promote transparency in financial accounts between the two nations for tax purposes. The agreement underscores growing international cooperation to curb offshore tax evasion and avoidance.

Finance Secretary Purisima, signing on behalf of the Republic of the Philippines, said, “The Philippines continues to stand at the forefront of fiscal transparency across the Asia-Pacific region, reaping measurable returns for our people. In fact, fiscal transparency is one of the 4 pillars of the Cebu Action Plan (CAP) the Philippines is advancing in its hosting of the Asia Pacific Economic Cooperation (APEC) Finance Ministers’ Process (FMP) meetings.

Tax evasion across borders is an alarming problem that we can beat back with openness and mutual cooperation. This IGA is an affirmation of that ideal.”
Ambassador Goldberg stated, “Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion – an objective that mutually benefits our two countries. By working together to detect, deter, and discourage tax abuses through increased transparency and enhanced reporting, we can help to build a stronger, more stable, and more accountable global financial system.”

The two countries have an existing tax treaty containing an Exchange of Information provision, a valuable tool for promoting tax cooperation between countries. Under said provision, information may be exchanged between the competent authorities in response to a specific request, or on an automatic basis, or spontaneously.

The innovation that the IGA introduces is the automatic reporting of financial accounts maintained by U.S. persons in Philippine financial institutions to the Bureau of Internal Revenue (BIR), which, in turn, will annually transmit the information to the U.S. Internal Revenue Service (IRS).

The reciprocal nature of the IGA provides the equivalent benefit to the Philippines as the IRS will routinely provide the BIR reports on financial accounts maintained by Philippine residents in U.S. financial institutions.  According to Secretary Purisima, signing the IGA also eases the compliance burden of Philippine financial institutions, who risked facing a 30 percent withholding tax on certain U.S.-sourced income if they failed to comply with FATCA-related reporting requirements.

The automatic reporting of financial accounts is premised on the appropriate safeguard measures to ensure confidentially of information that will be used solely for tax purposes, and the necessary infrastructure to effect timely, accurate, and secure exchange. Once in place, these will trigger the automatic exchange.

Enacted by the U.S. in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by U.S. taxpayers in other countries, FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. To date, 65 FATCA IGAs have been signed, 47 agreements have been agreed to in substance, and several others are under discussion.

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