In this Article, we have given information about
the recent significant developments in USA in the sphere of
international taxation. Since many Indian Corporates have substantial
business interests in and dealings with USA, we hope the readers would
find this information useful. This will help to create awareness about
impending important changes in law and practices in USA.
1. IRS issues FATCA guidance and final FFI agreement for foreign financial institutions
The
US Internal Revenue Service (IRS) has issued Revenue Procedure 2014-13
to provide guidance to foreign financial institutions (FFIs) entering
into FFI agreements directly with the IRS to be treated as participating
FFIs under the Foreign Account Tax Compliance Act(FAT CA). Revenue
Procedure 2014-13 also provides guidance to FFIs and branches of FFIs
treated as reporting financial institutions under an applicable Model 2
inter governmental agreement (IGA) (reportingModel2FFIs) on complying
with the terms of the FFI agreement, as modified by the Model 2 IGA.
Revenue
Procedure 2014-13 includes a final FFI agreement for participating FFIs
and for reporting Model 2 FFIs. The FFI agreement finalises the draft
FFI agreement that was released on 29th October, 2013 as section V of
IRS Notice 2013-69.
Revenue Procedure 2014-13 states that the
FFI agreement generally does not apply to a reporting Model 1 FFI, or
any branch of such an FFI, unless the reporting Model 1 FFI has
registered a branch located outside of a Model 1 IGA jurisdiction so
that such branch may be treated as a participating FFI or reporting
Model 2 FFI. In such a case, the terms of the applicable FFI agreement
apply to the operations of such branch.
Revenue Procedure 2014-13 is effective on 1st January ,2014.
2. Public comments requested on source of income from sales of natural resources and other inventory
The
US IRS and the Treasury Department have issued a notice requesting
comments on the existing regulations (TD8687) that provide rules for
allocating and apportioning income from sales of natural resources or
other inventory produced in the United States and sold outside the
United States or produced outside the United States and sold in the
United States. The regulations were issued u/s. 863 of the US Internal
Revenue Code (IRC).
Under the regulations, gross receipts equal
to fair market value of natural resources at the export terminal are
allocated to the location of the farm, mine, well, deposit, or uncut
timber, with the source of gross receipt from such sales in excess of
the product’s fairmarket value at the export terminal allocated to the
country of sale.
The regulations also provide rules for
allocating and apportioning income from inventory sales other than
natural resources where the taxpayer produces property in the United
States and sells outside the United States, or produces property outside
the United States and sells in the United States. Such income is
treated in part as USsource income and in part as foreign-source income
under one of the three methods described in the regulations: the 50/50
method, the independent factory price method, and the books and records
method.
The information collected under the regulations issued
by the IRS to determine on audit whether the tax payer has properly
determined the source of its income from export sales.
3. Updated IRS Publication 80 issued–Federal Tax Guide for Employers in US possessions
The
US IRS has released the revised IRS Publication 80, Circular SS
(Federal Tax Guide for Employers in US Virgin Islands, Guam, American
Samoa, and the Commonwealth of the Northern Mariana Islands). The
publication is dated 17th December, 2013 and is intended for use in
preparing 2014 tax returns.
Publication 80 provides information
for employers whose principal place of business is US Virgin Islands,
Guam, American Samoa, and the Commonwealth of the Northern Mariana
Islands (CNMI), or who have employees subject to income tax withholding
in these US possessions. Publication 80 notes that employers and
employees in these jurisdictions are generally subject to US social
security and Medicare taxes under the US Federal Insurance Contributions
Act (FICA), and summarises employer responsibilities to collect, pay,
and report these taxes. Additionally, Publication 80 provides employers
in the US Virgin Islands with a summary of the irresponsibilities under
the US Federal Unemployment Tax Act (FUTA ).
Revised Publication 80 provides information on new rules, including:
– The social security wage base limit (ceiling) for 2014 is $117, 000
– The social security tax rate remains 6.2% for each of the employer and employee;
– The Medicare tax rate remains 1.45%for each of the employer and employee;
–
Beginning 1st January, 2014, any entity assigned an employer
identification number (EIN) must file IRS Form8 822-B (Change of Address
or Responsible Party—Business) to report the change in the identity of
its responsible party; and
– IRS Notice 2013-61 provides special
administrative procedures for claims for refund or adjustments of over
payments of social security and Medicare taxes resulting from
recognition of certain same-sex marriages
Revised Publication 80 also provides reminders, including:
–
Employers are required to withhold an Additional Medicare tax of 0.9%
from wages paid to an employee in excess of $ 200,000 in a calendar
year;
– The IRS will not assert that an employer has understated
liability for FICA taxes by reason of a failure to treat services
performed before 1st January, 2015 in the CNMI by residents of the
Philippines as “employment” u/s. 3121(b)of the USIRC; and
– CNMI government employees are subject to social security and Medicare taxes beginning in the fourth quarter of 2012.
Publication 80 includes a calendar with the due dates for the IRS filing requirements.
In addition, Publication 80 refers to other IRS publications that are relevant in this context, Including:
– P ublication 15, Circular E (Employer’s Tax Guide) for information on US federal income tax withholding;
– P ublication 509 (Tax Calendars); and
–
P ublication 570 (Tax Guide for Individuals With Income From US
Possessions) for information on the self-employed tax. Publication 80 is
available on the IRS website.
4. IRS publishes quarterly list of individuals who have expatriated: Q2/2014
The
US IRS published on 7th August, 2014 a quarterly notice with a list of
US citizens and long-term US residents (green cardholders) who have
renounced their citizenship or resident status for tax avoidance
purposes.
The notice is dated 18th July, 2 014, and is based on
information that the US Treasury Department received during the quarter
ending 30th June, 2014.
The notice is required u/s. 6039G of the
USIRC. The list contains the name of each individual losing US
citizenship or long-term resident status within the meaning of IRC
sections 877(a) or 877A, dealing with the tax treatment of individuals
who are deemed to have expatriated from the United States for tax
avoidance purposes.
5 Public comments requested on treatment of compensatory stock options under transfer pricing rules
The us irs and the us treasury department have is- sued a notice requesting comments on information collection requirements imposed by the existing final regulations (td9088) dealing with the treatment of compensatory stock options under the transfer pricing rules of section 482 of the us IRC. the notice was published in the federal register on 7th august, 2014.
The final regulations, which were issued on 26th August, 2003, provide guidance on the treatment of stock-based compensation for purposes of the transfer pricing rules governing qualified cost sharing arrangements and for purposes of the comparability factors to be considered under the comparable profits method.
The final regulations adopted with modifications the proposed regulations (reG-106359-02 ) issued on this subject on 29th july, 2002. the irs requested that comments be submitted no later than 6th october, 2014. The mailing address and other contact information are given in the notice.
6. IRS updates FAQs on FATCA registration System
The us irs has released updated frequently asked Questions (FAQs) on the FATCA under the heading of FATCA registration system. the FAQs indicate a last reviewed or updated date of 1st august, 2014.
The fAQs provide guidance on the following topics:
– FATCA registration system–overview;
– registration system resource materials;
– General system questions;
– fatCa account creation and access;
– Registration status and account notifications;
– Expanded Affiliated Groups (EAG);
– registration updates;
– sponsoring entity;
– ffi list;
– paper registrations;
– Global Intermediary Identification Number (GIIN)–
overview; and
– GIIN format.
The update is made by adding:
– Question 1 to the topic, fatCa account creation and access;
– Questions 6 and 7 to the topic, registration status and account notifications; and
– Question 7 to the topic, registration updates.
The IRS notes that additional fAQs are available for the FATCa–FAQs General (last reviewed or updated on 29th july, 2014) and fAtCa FFI list (last reviewed or updated on 1st august, 2014).
7. IRS updates FAQs on FATCa FFI List
The us irs has released updated frequently asked Questions (fAQs) on the fatCa under the heading of irs ffi list fAQs. the fAQs indicate a last reviewed or updated date of 1st august, 2014.
The FFI list is a list that is issued by irs and that includes all financial institutions and branches that have submitted a registration and have been assigned a Global interme- diary Identification Number (GIIN).
The fAQs provide guidance on the following topics:
– FFI list overview;
– registration deadline;
– FFI List fields;
– FFI list;
– downloading;
– searching;
– legal entity name; and
– XML/CSV files.
Rhe update is made by adding questions 1 and 2 to the topic, ffi list, and adding question 2 to the topic, searching.
8. IRS further updates countries with residence waiver for foreign earned income exclusion for 2013
The us irs released announcement 2014-28 on 30th july, 2014 to update the list of foreign countries for which the residence requirement for the us foreign earned income exclusion u/s. 911 of the us irC can be waived for 2013 due to adverse conditions that prevented the normal conduct of business. the original list for 2013 was provided in revenue procedure 2014-25.
Announcement 2014-28 adds south sudan, effective for departure on or after 17th december, 2013.
IRC section 911 permits qualified individuals to exclude a limited amount of foreign earned income ($97, 600 for 2013, see united states-5, news 23rd october, 2012) from us taxation and to claim an exclusion or deduction for certain foreign housing costs if a foreign residence re- quirement is met.
The residence requirement can be waived for an indi- vidual who left the listed countries on or after the stated departure date if:
– There are adverse conditions, such as war, civil un- rest, or similar conditions, that prevent the normal con- duct of business in the countries; and
– The individual can establish a reasonable expectation of meeting the residence requirement but for the ad- verse conditions.
9. IRS issues revised instructions for requesters of withholding certificates (Forms W-8) to implement FATCA
The US IRD has released revised irs instructions for the requester of forms W-8Ben, W-8eCi, W-8eXp, and W- 8imy to implement the fatCa. the instructions are dated 16th july, 2014.
The revised instructions supplement the instructions for the following forms:
– Form W-8BEN (Certificate of Foreign Status of Ben- eficial Owner for United States Tax Withholding (Indi- viduals));
– Form W-8BEN-E (Certificate of Status of Beneficial owner for united states tax Withholding and reporting (entities));
– FormW-8ECI (Certificate of Foreign Person’s Claim that income is effectively Connected With the Conduct of a trade or Business in the united states);
– FormW-8EXP (Certificate of Foreign Government or other foreign organisation for united states tax Withholding); and
– Form W-8IMY (Certificate of Foreign Intermediary, foreign flow-through entity, or Certain us Branches for united states tax Withholding).
A withholding agent or a foreign financial institution (FFI) may need to request, and obtain, a withholding certificate (i.e., form W-8series) in order to:
– establish the status of a payee or an account holder under chapter 4 of the us irC (dealing with the fat- Ca provisions)or the payee’s status under irC chapter 3 (dealing with the regular withholding on us-source income paid to foreign persons); or
– Validate a payee’s or an account holder’s claim of for- eign status when there are us indicia associated with the payee or the account.
The revised instructions provide, for each form, notes to assist withholding agents and ffis invalidating the forms for chapters 3 and 4 purposes. The revised instructions also outline the due diligence requirements applicable to withholding agents for establishing a beneficial owner’s foreign status and claim for reduced withholding under an income tax treaty.
10. Guidance issued on FTC limitations for foreign asset acquisitions
The IRS and the us treasury department have issued notice 2014-44 to announce their intention to issue regulations addressing the limitations of foreign tax credits (FTCs) related to certain foreign asset acquisitions u/s. 901(m) of the irC. notice 2014-44 was released on 21st july, 2014.
FTCs may be limited by IRC section 901(M)if the FTCs result from certain foreign asset acquisitions, referred to as “covered asset acquisitions” (Caas), in connec- tion with which taxpayers may elect to claim a higher tax basis in the “relevant foreign assets” (RFAS) for us tax purposes than for foreign tax purposes. as a result of the difference, the amount of taxable gain from the rfas, and potentially the tax, is higher in the foreign jurisdiction than in the united states.
IRC section 901(m) disallows the portion of the ftC (the”disqualifiedportion”) that is attributable to the tax basis difference in the rfas to the extent the basis dif- ference is allocated to the taxable year. The disqualified portion of any ftC is allowed as a deduction. irC section 901(m)(3)(B)(i) allocates the basis difference to taxable years using the applicable cost recovery method for us income tax purposes.
IRC section 901(m)(3)(B)(ii) provides that, if there is a dis- position of an rfa, the basis difference allocated to the taxable year of the disposition (the “dispositionamount”) is the remaining (i.e., unallocated) basis difference, and no basis difference will be allocated to any subsequent taxable years (the “statutory disposition rule”).
To prevent taxpayers from avoiding the purpose of irC section 901(m) by invoking the statutory disposition rule, notice 2014-44 provides that, for purposes of section 901(m), a disposition means an event (for example, a sale, abandonment, or mark-to-market event) that results in gain or loss being recognised with respect to an rfa for purposes ofus income tax or a foreign income tax, or both. Notice 2014-44 clarifies that a disposition does not occur from a tax-free deemed liquidation that arises when an acquired foreign target corporation makes an entity classification election to become a disregarded entity for us tax purposes under the us check-the-box regulations.
Notice 2014-44 applies two separate rules for determin- ing the disposition amount, depending on whether or not the disposition is fully taxable for both us and foreign income tax purposes. in addition, notice 2014-44 contains special rules with re- gard to a Caa that is an acquisition of an interest in a partnership that has an election in effect under irC section 754, i.e., an election that permits the inside tax basis of partnership assets to be increased under irC section 743 following the acquisition of an interest in the partnership. notice 2014-44 also provides that IRC section 901(m) continues to apply to an rfa until the entire basis difference in the rfa has been taken into account using the applicable cost recovery method or as a disposition amount (or both), regardless of a change in the ownership of an RFA.
The rules provided in notice 2014-44 will generally apply to dispositions occurring on or after 21st july, 2014, subject to exceptions described in section 5 of the notice.
11. Joint Committee on Taxation issues report on proposal store form taxation of multinational corporations
The joint Committee on taxation of the us Congress (JCT) has released a report on recent proposal store form the us taxation of multinational corporations.
The report is entitled present law and Background re- lated to proposals to reform the taxation of income of multinational enterprises. the report is dated 21st july, 2014, and is designated jCX-90-14.
The report includes the following:
– a description of present us tax law applicable to in- bound investment (the us activities of foreign persons) and outbound investment (the foreign activities of uspersons);
– a description of current policy concerns related to the taxation of multinational corporations;
– Background on recent global activity related to the taxation of cross-border income; and
– descriptions and a comparison of recent proposal store form the us international taxs ystem.
The report was prepared in connection with a public hear- ing that the us senate Committee on finance held on 22nd july, 2014 with regard to the taxation of cross-bor- der income.
12. Final regulations issued regarding information re- porting by US passport applicants
The us treasury department and the irs have issued final regulations (td9679) to provide guidance on information reporting rules for certain individuals that apply for us passports (including renewals) u/s. 6039e of the us IRC. The final regulations were published in the Federal register on 18th july, 2014.
IRC section 6039e requires individuals applying for permanent residence (i.e., a green card) in the united states or for a us passport to include certain tax information in their applications. the us federal agency, to which the applica- tion is made, must provide such information to the IRS.
On 24th december, 1992, proposed regulations (intl- 978-86,reG-208274-86) were issued with guidance for both passport and permanent residence applicants to comply with information reporting rules under irC section 6039e. the 1992 proposed regulations also indicated the responsibilities of the specified US Federal agencies to provide certain information to the irs.
On 26th january, 2012, new proposed regulations (reG- 208274-86, rin1545-aj93) were issued to withdraw the 1992 proposed regulations and to provide guidance on information reporting by passport applicants. the 2012 proposed regulations did not provide rules for information reporting by applicants for permanent residence. The final regulations adopt the 2012 proposed regulations with minor revisions.
The final regulations provide that a passport applicant, other than an applicant for an official passport, diplomatic passport, or passport for use on other official US government business, must provide his or her full name (including previous name, if applicable), permanent address and, if different, mailing address, tax payer identification number (TIN), and date of birth. a penalty of $ 500 may be imposed for non-compliance.
The final regulations further provide that a passport appli- cant who fails to provide the required information has 60 days (90 days for an applicant outside the united states) from the date of the irs’s written notice of the potential penalty assessment to respond to the notice if the appli- cant wishes to avoid the penalty. the applicant must do this by establishing that the failure is due to reasonable cause and not due to willful neglect.
The final regulations are designated Treasury Regula- tion section 301-6039e-1. they are effective on 18th july, 2014, and apply to passport applications submitted after 18th july, 2014.
13. Final regulations issued regarding source rules for allocation and apportionment of interest expenses
The us treasury department and the irs have issued final regulations (td9676) to provide guidance on the allocation and apportionment of interest expenses between us and foreign sources u/s. 861 and 864(e) of the us IRC. The final regulations were published in the Federal register on 16th july, 2014.
The final regulations provide guidance on a number of is- sues, including the allocation and apportionment of interest expenses by corporations and individuals that own a 10% or greater interest in a partnership, as well as rules for valuing debt and stock of related persons. The final regulations also update the interest allocation regulations to conform to the statutory amendments regarding the al- location and apportionment of interest expenses by us corporate groups that include certain affiliated foreign cor- porations for purposes of irC section 864(e).
IRC section 864(e) provides that interest expenses of us corporate groups are to be allocated and apportioned between us and foreign sources as if all members of the group were a single corporation, and further that such allocation and apportionment are to be made on the basis of the assets of the corporate group (i.e., us and foreign) rather than on the basis of the gross income of the group. the amended irC section 864(e)(5)(a) treats a qualifying foreign corporation as a member of a US affiliated group for interest allocation purposes, and thus all the assets and interest expenses of the foreign member are taken into account, if specified 80% stock ownership and 50% us gross income/effectively Connected income (ECI) requirements are met.
The final regulations adopt, with no substantive change, the temporary regulations (td9571) issued on 17th january, 2012, as well as the portions of the earlier temporary regulations (td8228), issued on 14th september, 1988, that were not amended by the 2012 temporary regulations.
The final regulations amend provisions within Treasury regulation sections 1.861-9, -9t, -11, and-11t.
The final regulations are effective on 16th July, 2014, and generally apply to taxable years beginning on or after 16th july, 2014.
14. IRS issues Memorandum on withholding on pay- ments to beneficial owner that fails to file income tax returns
The Office of Chief Counsel of the IRS has issued a memorandum that discusses the us withholding consequences of a beneficial owner’s failure to file US income tax returns after claiming a withholding exemption for us effectively connected income.
In the facts of the Memorandum, a Beneficial Owner (BO) provided a Withholding agent (WA) with irs formW-8eCi (Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a trade or Busi- ness in the united states) to claim an exemption from us withholding tax on payments of income effectively con- nected with the conduct of a us trade or business (eCi). the Wa did not withhold on the payments made to the Bo in reliance on the form W-8eCI.
The BO certified in the FormW-8ECI that the amounts re- lated to the claim of exemption were ECI and were includible in the us gross income. the formW-8eCI includes a note that “Persons submitting this form must file an an- nual us income tax return to report income claimed to be effectively connected with a us trade or business.” the BO, however, did not file a US income tax return for any of the taxable years at issue.
Sections 1441 and 1442 of the irC require a withholding agent to withhold 30% of US-source fixed or determin- able, annual, or periodical (fdap) income paid to a foreign person. irC section 1441(c)(1), however, exempts withholding for eCi that is included in the gross income of the recipient. the consequence of this procedure is that the foreign person reports the eCi on a us income tax return and computes us income tax liability on a net in- come basis (i.e., gross income less allowable deductions) using the regular progressive us income tax rates rather than computing US tax liability at a flat 30% rate (or lower treaty rate) on the gross amount of the payment.
Under treasury regulation (treas. reg.) section 1.1441- 7(b)(1), a withholding agent may rely on a claim of exemption contained in formW-8eCi, but a withholding agent that receives a valid formW-8eCi must still withhold if it has actual knowledge or reason to know that the claim of exemption is incorrect.
The memorandum concludes that, because the BO made a claim of exemption for ECI and failed to file US tax
Returns including such amounts in gross income, the irs can determine the claim to be “incorrect” and provide direct notification to the WA under Treas. Reg. section 1.1441-7(b)(1) that it cannot rely on the Bo’s claim of exemption. the memorandum further states that the Wa will not be able to rely on the Bo’s claim of exemption beginning on the date that is 30 calendar days after the Wa receives such a notification, as described in Treas. Reg. section 1.1441-7(b)(1).
The memorandum is designated ilm201428007. the memorandum is dated 7th may, 2014, and indicates are lease date of 11th july, 2014.
15. IRS updates FaQs on general FATCA issues
The us irs has released updated frequently asked Questions (faQs) on the FATCA under the heading of FATCA–fAQs General. the fAQs indicate a last reviewed or updated date of 10th july, 2014.
The updated fAQs provide guidance on the following topics:
– Qualified Intermediaries (QIs)/Withholding foreign partnerships(Wps)/Withholding foreign trusts (Wts);
– inter Governmental agreement (iGa) registration;
– Expanded Affiliated Groups (EAGs);
– sponsoring/sponsoredentities;
– Responsible Officers (ROs) and Points Of Contact
(POCS);
– financial institutions (FIS)
– Exempt beneficial owners;
– non-financial foreign entities (NFFES);
– registration updates;
– Branches/disregarded entities;
– FFI and AGG changes;
– General compliance;
– additional supports; and
– FATCA registration system technical supports.
The update was made with regard to NFFES, FFI and EAG changes, and registration updates.
16. IRS issues instructions to withholding certificate for foreign entities (FormW-8BEN-E) for FATCA
The us irs has released irs instructions for irs formW- 8BEN-E (Certificate of Status of Beneficial Owner for united states tax Withholding and reporting (entities)) to implement the fatCa. the instructions are dated 20th june, 2014.
the irs previously issued the new irs form W-8Ben- E (Certificate of Status of Beneficial Owner for United states tax Withholding and reporting (entities)) to be used by entities.
IRS formW-8Ben-e is used by a foreign entity:
– To certify its status as a beneficial owner or payee of a payment for purposes of chapter 3 of the us irC (dealing with the regular withholding on income paid to foreign persons);
– To claim income tax treaty benefits, if applicable, for the purpose of IRC chapter 3;
– to certify its status under irC chapter 4 (dealing with the fatCa provisions); and
– to submit to a payment settlement entity (pse) re- questing the form if the entity receives payments that would trigger information reporting for the pse under irC section 6050W (i.e., payments made in settlement of payment card transactions and third-party network transactions) unless the payee is a foreign person.
A foreign entity must furnish irs form W-8Ben-e to the withholding agent or payer when:
– the foreign entity receives a withholdable payment from a withholding agent;
– the foreign entity receives a payment subject to chap- ter 3 withholding; and
– a foreign financial institution (ffi) with which the for- eign entity maintains an account requests the form.
IRS form W-8Ben as in use for 2013 and previous years was completed by both individuals and entity beneficial owners of the income to which the form related. the re- vised 2014 IRS FormW-8BEN (Certificate of Foreign Sta- tus of Beneficial Owner or United States Tax Withholding (individuals)) is for use exclusively by and entities should use the new irs form W-8BEN-E.
17. IRS revises instructions to Form 1042-S for reporting foreign persons’ US source income to include FATCA requirements
The us IRS has released revised irs instructions for form 1042-s (foreign person’s us source income subject to Withholding). the instructions are dated 24th june, 2014. the irs previously issued revised irs form 1042-s. irs Form 1042-S has been modified to accommodate report- ing of payments and amounts withheld under chapter 4 of the us IRC, commonly known as the fatCa, in addition to those amounts required to be reported under irC chap- ter 3. IRC chapter 3 deals with the regular withholding on US-source income paid to foreign persons, including fixed or determinable annual or periodical (fdap) income.
When a financial institution reports a payment made to its financial account, IRS Form 1042-S also requires the reporting of additional information about a recipient of the payment, such as the recipient’s account number, date of birth, and foreign tax payer identification number, ifany. For withholding agents, intermediaries, flow-through entities, and recipients, irs form 1042-s requires that the chapter 3 status (or classification) and/or the chapter 4 status be reported on the form according to codes provided in the instructions.
In addition, IRS Form 1042-2 must be filed to report specified Federal procurement payments made to foreign persons that are subject to withholding under IRC section 5000C and to report distributions of us effectively Connected income (ECI) by a publicly traded partnership or nominee.
18. IRS issues instructions for FATCA reporting form
The us IRS has released IRS instructions for form 8966 (fatCa report). the instructions are dated 20th june, 2014.
The irs previously issued new irs form 8966. irs form 8966 is required to be filed under chapter 4 of the US IRC, commonly referred to as the FATCA, to report information with respect to certain us accounts, substantial us owners of passive non-financial foreign entities (nffes), us accounts held by owner-documented foreign financial institutions (FFIS), and certain other accounts as applicable based on the filer’s chapter 4 status.
Filers of irs form 8966 include a participating FFI (PFFI), a us branch of a PFFI that is not treated as a us person, a registered deemed-Compliant (RDC) ffi (including a reporting model 1 FFI), a limited branch or limited ffi, a reporting Model 2 FFI, a Qualified Intermediary (QI), a Withholding foreign partnership (Wp), a Withhold- ing foreign trust (Wt), a direct reporting nffe, and a sponsoring entity. for calendar years 2015 and 2016, irs form 8966 is also filed by PFFIs, RDCFFIs, and reporting Model 2 FFIs to report certain amounts paid to their account holders that are non-participating ffis.
The initial filing of IRS Form 8966 will be required to be made on or before 31st march, 2015 for the 2014 calen- dar year.
19. IRS releases addendum to user guide for FATCA online registration
The us IRS has released publication 5118a (addendum to the fatCa online registration user Guide). the addendum is dated july, 2014.
The addendum serves as a supplement to, and should be used in conjunction with, publication 5118 (FATCA online registration user Guide, rev.12-2013). the user guide provides instructions for using the FATCA registration system to complete the fatCa registration process online.
The addendum describes new functionality introduced since the last revision of the use rguide. Specifically, the addendum updates 6.6 appendix e: Country look up table of the user guide (pages 116 through 121) by adding the West Bank and Gaza (numeric Code: 275).
20 IRS announces changes to its offshore voluntary compliance programmes
The us irs has announced major changes in its off shore voluntary compliance programmes that will allow a broader group of us tax payers to participate so that they can come into compliance with their us tax obligations. The announcement was made in an irs news release (IR- 2014-73) dated 18th june, 2014. the irs Commissioner has also issued a statement dated 18th june, 2014.
The changes include an expansion of the streamlined filing compliance procedures announced in 2012 and modifications to the 2012 Offshore Voluntary Disclosure program(oVdp).
Expansion of streamlined filing compliance procedures the expanded streamlined procedures are intended for us tax payers whose failure to disclose their offshore assets was non-wilful.
The changes to the streamlined procedures include:
– extending eligibility to include us taxpayers residing in the united states, in addition to us taxpayers resid- ing broad;
– eliminating a requirement that the taxpayer have usd 1,500 or less of unpaid tax per year;
– eliminating the required risk questionnaire; and
– requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.
Modifications to OVDP
The modified OVDP is designed to cover US taxpayers whose failure to comply with reporting requirements is considered willful in nature, and who therefore do not qualify for the streamlined procedures.
The modifications to the 2012 OVDP include:
– Requiring additional information from taxpayers apply- ing for the programme;
– Eliminating the reduced 5% and 12.5% penalties for certain non-wilful taxpayers in light of the expansion of the streamlined procedures;
– Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the oVdp application;
– Enabling an electronic submission of records; and
– Increasing the offshore penalty from 27.5% to 50% if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the irs or the us department of justice.
Related items
The IRS has also released the following related items:
– a factsheet (fs-2014-6) with highlights of the irs offshore voluntary programmes since 2009;
– A factsheet (FS-2014-7)with tax filing information for us taxpayers with offshore accounts; and
– OVDP documents and forms.
Results of offshore evoluntary programmes
The IRS notes that its three voluntary programmes in 2009, 2011, and 2012 have resulted in more than 45,000 disclosures and the collection of approximately USD6.5 billion in taxes, interest and penalties.
21. IRS releases guidance on options for US taxpay- ers with undisclosed foreign financial assets
The us IRS has issued guidance on options for us tax- payers who have previously failed to comply with us tax and information return obligations with respect to their non-us bank accounts and other foreign investments. the guidance indicates a last reviewed or updated date of 18 june 2014.
The guidance includes the following options:
– the 2012 offshore Voluntary disclosure program (oVdp);
– streamlined filing compliance procedures;
– delinquent fBar submission procedures; and
– delinquent international information return submission procedures.
The OVDP is specifically designed for taxpayers with ex- posure to potential criminal liability and/or substantial civil penalties due to a wilful failure to report foreign financial assets and pay all tax due in respect of those assets. The OVDP is designed to provide such taxpayers with protection from criminal liability and sets out the terms for resolving their civil tax and penalty obligations.
The streamlined filing compliance procedures are available to taxpayers who certify that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from wilful conduct. the streamlined procedures are designed to provide such tax- payers with a streamlined procedure for filing amended or delinquent returns and set out terms for resolving their tax and penalty obligations.
The delinquent FBAR submission procedures are intended for taxpayers who:
– have not filed a required Report of Foreign Bank and financial accounts (FBAR) (finCen form 114, previously form TD f 90-22.1);
– are not under a civil examination or a criminal investi- gation by the irs; and
– have not already been contacted by the irs about the delinquent fBars.
The delinquent international information return submis- sion procedures are available to taxpayers who:
– have not filed one or more required international infor- mation returns;
– have reasonable cause for not timely filing the infor- mation returns;
– are not under a civil examination or a criminal investi- gation by the irs; and
– have not already been contacted by the irs about the delinquent information returns.
For a report on the recent announcement of changes to the 2012 oVdp and the streamlined procedures, see united states-1, news 23rd june, 2014.
22. Final and proposed regulations issued on IRS Form 5472 reporting requirements
The us treasury department and the irs have issued final regulations (TD9667) and proposed regulations (reG–114942–14) u/s. 6038a and 6038C of the us irC to provide guidance on the requirements to file IRS Form 5472 (information return of a 25% foreign-owned us Corporation or a foreign Corporation engaged in a us trade or Business). the form is used by the irs to collect information on transfer pricing transactions between related parties.
IRC section 6038a requires information reporting by a 25% foreignowned domestic corporation with respect to certain transactions between such corporation and related parties.
IRC section 6038C imposes a similar reporting requirement on a foreign corporation engaged in a trade or business within the united states.
Final regulations (td8353) were issued on 19th june, 1991 to provide that:
– a reporting corporation under irC sections 6038a and 6038C is required to file Form 5472 with its US income tax return by the due date of the return with respect to each related party with which the corporation has had any reportable transaction during the taxable year;
– Such reporting corporation is also required to file a duplicate form 5472 with the irs Centre in philadel- phia, pa (i.e.,the duplicate filing requirement); and
– if a reporting corporation’s income tax return is not timely filed, Form 5472 nonetheless I required to be filed (with a duplicate to the IRS Centre in Philadel- phia, pa) at the irs Centre where the return is due (i.e.,the untimely filed return provision), and, when the income tax return is ultimately filed, a copy of Form 5472 must be attached to the return.
Temporary regulations (TD9529) were issued on 10th June, 2011 to remove the duplicate filing requirement on the ground that advances in electronic processing and data collection in the irs made it no longer necessary.
The new final regulations (TD9667)adopt the 2011 temporary regulations without substantive change as final regulations. The final regulations are designated Treasury regulation (treas.reg.) section 1.6038a-1, and -2. the final regulations are effective on 6th June, 2014.
In addition, the new proposed regulations (reG–114942–14) Eliminate the untimely filed return provision to promote efficient tax administration and consistency with other similar international reporting obligations applicable to us persons. as a result, the proposed regulations require a reporting corporation to file Form 5472 only with its in- come tax return by the duedate (including extensions)of the return.
The proposed regulations are designated treas.reg. section 1.6038a-1, -2, and-4. the proposed regulations will apply to taxable years ending on or after the date on which the proposed regulations are published as final.
23. IRS releases its first list of FATCA compliant financial institutions
The US IRS released the first IRS Foreign Financial Institution (FFI) list. the irs has also issued a related statement dated 2nd june, 2014.
The IRS FFI list is a list of financial institutions (FIS) and other entities (e.g. direct reporting non-financial foreign entities and sponsoring entities) that have completed fatCa registration with the irs and obtained a Global Intermediary Identification Number(GIIN).
The first FFI List includes FIs in approved status as of 23rd May, 2014. The FFI List is updated on the first day of each month and will only include fis that are approved five business days prior to the first day of the month.
The FFI list search and download tool can be used to look for fis and their branches to determine if they are on the FFI list. the tool can download the entire FFI list or search for a particular fi by its legal name, GIIN,or country. no login or password is required to search or download the ffi list. the results will be displayed on the screen and can be exported in CSV, Xml, or pdf formats.
The IRS previously issued the following related items:
– publication 5147 (FFI list search and download tool: UserGuide);
– fatCa FFI list resources and support information Webpage; and
– FFI list frequently asked Questions(fAQs).
24. Regulations issued to amend FaTCa provisions and coordinate FaTCa regulations with pre-existing tax rules
The us treasury department and the IRS issued temporary regulations (TD9657) on 20th february, 2014 to make additions and clarifications to the previously issued regulations on implementation of the FATCA. the treasury department and the irs also issued additional temporary regulations (TD9658) on the same day to provide guidance to coordinate FATCA rules with pre-existing reporting and withholding requirements under other provisions of the us IRC.
The treasury department issued a related press release dated 20th february, 2014, together with a factsheet on the new regulations.
Amendments to prior FATCA regulations
The first regulations (TD9567) contain over 50 amend- ments and clarifications to the previous FATCA regulations that were issued on 17th january, 2013 (TD9610) in response to certain stakeholder comments regarding ways to further reduce compliance burdens. Key changes include those relating to:
– the accommodation of direct reporting to the irs, rather than to withholding agents, by certain entities regarding their substantial us owners;
– the treatment of certain special-purpose debt securi- tisation vehicles;
– the treatment of disregarded entities as branches of
foreign financial institutions (FFIs); – The definition of an expanded affiliated group; and
– transitional rules for collateral arrangements prior to 2017.
Coordination of FATCA with pre-existing reporting and withholding rules
irC chapter 3 contains reporting and withholding rules relating to payments of certain us-source income (e.g. dividends on stock of us corporations) to non-us per- sons. irC chapter 61 and irC section 3406 impose the reporting and withholding requirements for various types of payments made to certain us persons (us non-ex- empt recipients).
the second regulations (td9568) coordinate these pre- fatCa regime with the requirements under fatCa to in- tegrate these rules, reduce burden (including certain du- plicative information reporting obligations), and conform the due diligence, withholding, and reporting rules under these provisions to the extent appropriate. Specifically, the coordinating rules make changes that are intended:
– to remove inconsistencies in the chapter 3 and fat- Ca documentation requirements relating to the identi- fication of payees (including inconsistencies regarding presumption rules in the absence of valid documenta- tion);
– to ensure that payments are not subject to withhold- ing under both irC chapter 3 and ftCA, or under both IRC section 3406 and FATCA;
– to relieve non-us payors from chapter 61 report- ing to the extent the non-us payor reports on the account in accordance with the fatCa regulations or an applicable inter governmental agreement (iGa);
– to provide a limited exception to reporting under irC chapter61 for both us payors and non-us payors that are ffis required to report under fatCa or an applicable iGa, with respect to payments that are not subject to withholding under irC chapter 3 or irC section 3406 and that are made to an account holder that is a presumed (but not known) us non-exempt recipient;
– to provide a limited exception from reporting under irC chapter 61 for us payors acting as stock transfer agents or paying agents of distributions from certain passive foreign investment companies (PFICS) made to us persons; and
– to make other conforming changes.
Effective date: the regulations will become effective when published as final
25. IRS releases Transfer Pricing audit roadmap
The transfer pricing operations (TPO)of the large Business and international (lB & I) division of the us irs has released the transfer pricing audit roadmap (roadmap)to the public. The irs also issued a statement announcing the release of the road map on 14th february 2014.
TPO is a dedicated team of transfer pricing specialists that is established by the lB & i of the irs and that encompasses both the advance pricing and mutual agreement program (APMA) and the transfer pricing practice (TTP).
TPO has developed the road map to provide the irs transfer pricing practitioner with audit techniques and tools to assist with the planning, execution, and resolution of transfer pricing examinations. the road map is organised around a notional 24-month audit timeline.
The IRS notes that the road map is not intended as a template, but rather serves as a toolkit that provides recommended audit procedures and links to useful reference material. the road map also provides the public within sight into what to expect during a transfer pricing exami- nation.
The IRS also states that TPO will review the road map and make changes over time as new techniques arise or additional reference materials become available.
[Acknowledgement/Source: We have compiled the above information from the Tax News Service of IBFD for the period 01-01-2014 to 09-08-2014]
