Qualified Intermediaries and FATCA

Qualified Intermediaries
and FATCA
Global Financial Services Industry
What is FATCA?
Enacted in 2010 as part of the Hiring Incentives to Restore Employment (“HIRE”) Act, the Foreign
Account Tax Compliance Act (“FATCA”) addresses perceived abuses by U.S. taxpayers with
respect to offshore financial assets. FATCA compels foreign financial institutions (“FFIs”) to report
U.S. financial asset holders to the IRS beginning in 2014. It requires payors (withholding agents) of
U.S. sourced income to withhold 30% of gross payments made to FFIs and non-financial foreign
entities (“NFFEs”). To avoid FATCA withholding, an FFI must register with the IRS, generally by
June 30, 2013, and sign an FFI agreement to become a participating FFI, while an NFFE must
provide the withholding agent with either (1) a certification that it does not have any substantial
specified U.S. owners or (2) information its substantial specified U.S. owners. Proposed Regulations
providing detail with regard to FATCA were issued February 8, 2012.
Qualified Intermediaries (“QIs”): Under current regulations an “intermediary” is “a person that acts as
a custodian, broker, nominee, or otherwise as an agent for another person, regardless of whether
such other person is the beneficial owner of the amount paid, a flow-through entity, or another
intermediary.” 1 Intermediaries have certain obligations regarding their receipt of certain U.S. sourced
income payments. Specifically, intermediaries must furnish withholding certificates such as W-8s, W9s and Forms 8233 to withholding agents to reduce or eliminate withholding under regular U.S. tax
rules applicable to cross-border payments.
Entities meeting certain requirements may apply to enter into a “QI agreement” with the IRS. 2 Under
a QI agreement, a QI may provide a withholding agent an intermediary withholding certificate along
with a withholding statement allocating the amounts required to be withheld from a payment along
with other required information. As a result, the QI does not have to provide the withholding agent
with withholding certificates or other appropriate documentation for beneficial owners, payees, or
1
Treas. Reg. §1.1441-1(c)(13). Section 1441 is also commonly referred to as Chapter 3 withholding.
2
Treas. Reg. §1.1441-1(e)(5).
interest holders of payments it receives, and may also accept U.S. withholding responsibilities with
regard to these payments.
To become a QI, an entity must be:
1. An FFI or a foreign clearing organization (as defined in §1.163-5(c)(2)(i)(D)(8), without regard to
the requirement that the organization hold obligations for members), other than a U.S. branch or
U.S. office of such institution or organization;
2. A foreign branch or office of a U.S. financial institution or a foreign branch or office of a U.S.
clearing organization (as defined in §1.163-5(c)(2)(i)(D)(8), without regard to the requirement that
the organization hold obligations for members);
3. A foreign corporation for purposes of presenting claims of benefits under an income tax treaty on
behalf of its shareholders; or
4. Any other “person” acceptable to the IRS. 3
The Intersect Between FATCA and the QI Regime
While FATCA creates a new layer of customer documentation and information reporting
requirements for FFIs, the impact of the law on Qualified Intermediaries (“QIs”) is altered significantly
under the current Proposed Regulations. Because of several overlaps between the FATCA (Chapter
4) reporting requirements and the §1441 (Chapter 3) reporting requirements, the Proposed
Regulations reduce certain QI reporting obligations while imposing other additional obligations on
QIs. Examples include:
1. A participating FFI that under its QI agreement previously obtained documentation from an
account holder to establish the account holder's status as a non-U.S. individual does not need to
perform the electronic search or the enhanced review described in the Proposed Regulations for
such an account. However, the Proposed Regulations require the participating FFI to perform the
relationship manager inquiry if the account is a high-value account (accounts with a balance or
value exceeding $ 1 million).
2. If an FFI that is a QI meets the conditions of a limited FFI under the rules of the Proposed
Regulations, the FFI may enroll as a limited FFI notwithstanding that none of the FFIs in its
expanded affiliated group can comply with the provisions of an FFI agreement. The IRS stated in
its opening comments in the Proposed Regulations that it intends to require all QIs to be
participating FFIs.
3. The IRS will require a participating FFI that is a QI and that has not assumed primary withholding
responsibility under chapter 3 to make the election under section 1471(b)(3) to be withheld upon.
If it has assumed primary withholding responsibility under Chapter 3, it may not make such an
election.
4. While payments to foreign branches of U.S. persons are generally considered to be payments to
U.S. payees, a payment to a foreign branch of a U.S. financial institution will be treated as a
payment to a foreign payee if the foreign branch is a QI. Therefore, a foreign branch that is a QI
will provide the withholding agent with an intermediary withholding certificate and the withholding
agent will report the payment as having been made to a foreign branch of the QI on a Form
1042-S.
The IRS has indicated that it intends to create separate reporting requirements specifically for QIs
with respect to U.S. accounts. It has also stated that it seeks comments on coordinating the Chapter
3 reporting requirements and existing withholding requirements of these entities under their
respective agreements with the reporting and withholding requirements under Chapter 4 (including
QIs that are foreign branches of U.S. financial institutions).
3
Similar but distinct agreements are available with regard to certain foreign partnerships and withholding foreign trusts
that wish to take advantage of pooled reporting and are willing to accept U.S. withholding obligations to do so.
Next Steps
While many of the information reporting functions QIs conduct currently may be leveraged for FFI
reporting responsibilities under FATCA, there are several considerations QIs should analyze before
FATCA’s effective date and before the Treasury issues further guidance. Some specific action items
to consider when developing QI FATCA compliance programs include:
• Reviewing the QI’s current organization structure to understand its administrative requirements
and potential documentation, withholding, depositing, and reporting obligations under FATCA,
including classification of the QI’s legal entities into FATCA taxonomy categories, and determining
existing documentation, withholding, depositing, and reporting capabilities and processes that can
be leveraged and enhanced to support FATCA requirements;
• Classifying accounts into FATCA categories;
• Identifying high-value accounts subject to the additional relationship manager inquiry
requirements;
• Analyzing the QI’s capability and obligation to elect under section 1471(b)(3) to be withheld upon;
• Identifying foreign branches of U.S. persons and implementing additional information reporting
functionality for these entities;
• Communicating with business partners and service providers to determine division of
responsibilities, develop a ‘FATCA readiness plan’, and consider whether service provider
agreements may need modifications to require associates to be FATCA compliant;
• Managing impact on client relations processes, including updating processes for new client
onboarding, and developing a plan and approach for reaching out to existing clients to determine
their FATCA classification, determining the roles and responsibilities of the organization and each
client, obtaining waivers and/or additional information required under FATCA, and understanding
non-U.S. clients’ plans for becoming FATCA compliant;
• Analyzing AML/KYC programs performed internally and by third party service providers to confirm
compliance with FATCA requirements;
• Developing a governance structure for implementation and identifying “Responsible Officer(s)”
who are required to certify compliance;
• Coordinating communications with clients and managing the various vendor communications to
maintain a consistent and cohesive client experience;
• Managing the process for identifying, recording, reconciling, and reporting the new withholding
information to the IRS;
• Educating cross departmental teams on the impact to their business units or functions, and
appropriately identifying the impact to existing processes or technology platforms;
• Reviewing and updating internal policies and procedures to help monitor FATCA compliance, and
establishing controls and governance structure to monitor and resolve FATCA issues (e.g., nonFATCA compliant clients);
• Consulting with tax professionals on questions and concerns regarding reporting regimes; and
• Contributing comments and feedback to the IRS and Treasury.
How Deloitte Can Help
In an environment where FFIs are already under significant cost pressure resulting from the rapidly
expanding regulatory environment, Deloitte can provide help by assisting management with all or
some segments of complying with FATCA. For our clients, this typically involves deploying an
engagement team led by an internal champion and a Deloitte FATCA specialist, who work together
to provide recommendations and guidance for the FFI and internal stakeholders in preparing for and
implementing the new rules.
For more information please click here or please contact:
Denise Hintzke
Director, Global FATCA Tax Leader
Deloitte Tax LLP
+1 212 436 4792
dhintzke@deloitte.com
Anne Mericle
Global FATCA PMO Manager
Deloitte Tax LLP
+1 212 436 3908
americle@deloitte.com
Americas
John Rieger
Partner, National Tax Financial
Services Industry
Deloitte Tax LLP
+1 212 436 6934
jrieger@deloitte.com
John Kocjan
Partner, FATCA Consulting Leader,
U.S.
Deloitte Consulting LLP
+1 212 618 4181
jkocjan@deloitte.com
Greg Thomas
Principal, FATCA Enterprise Risk
Services Leader, U.S.
Deloitte & Touche LLP
+1 415 783 5211
grethomas@deloitte.com
Stephen Cryer
FATCA Leader, Canada
Deloitte & Touche LLP
+ 1 416 874 3169
scryer@deloitte.ca
Oscar Ortiz
FATCA Leader, LatAm
Deloitte Mexico
+52 55 5080 6513 x6513
oortiz@deloittemx.com
Mike Wade
Director, FATCA Enterprise Risk
Services Leader, U.S.
Deloitte & Touche LLP
+1 804 697 1537
miwade@deloitte.com
James Dockeray
FATCA Leader, Caribbean/Bermuda
Deloitte & Touche Ltd.
+1 441 299 1399
james.dockeray@deloitte.bm
Michael Shepard
Partner, U.S. FATCA Financial
Advisory Services Leader, Deloitte
Financial Advisory Services LLP
+1 215 299 5260
mshepard@deloitte.com
Europe, Middle East & Africa
Asia-Pacific
Piero Molinario
FATCA FAS Leader, Europe
Deloitte & Touche, S.p.A
+39 02 8332 5102
pimolinario@deloitte.it
Jim Calvin
FATCA Leader, Asia-Pacific
Deloitte & Touche LLP
+65 6224 8288
jimcalvin@deloitte.com
Nick Sandall
FATCA Consulting Leader, EMEA
Deloitte LLP
+ 44 20 7007 1850
nsandall@deloitte.co.uk
Graham Dillon
FATCA Leader, Australia
Deloitte LLP
+61 2 9322 5111
gdillon@deloitte.com.au
Chris Tragheim
FATCA Tax Leader, EMEA
Deloitte LLP
+ 44 20 7303 2848
ctragheim@deloitte.co.uk
Hiromi Ikuta
FATCA Leader, Japan
Deloitte Touche Tohmatsu
+036 213 1164
hiromi.ikuta@tohmatsu.co.jp
Julian Hawkins
FATCA Consulting Leader, Middle East.
Deloitte & Touche (M.E.)
+971 55 1094465
julhawkins@deloitte.com
Andy MacDonald
FATCA FAS Leader, Asia-Pacific
Deloitte & Touche Financial Advisory Services
+65 6216 3180
anmacdonald@deloitte.com
Brandon George
FATCA Tax Leader, Middle East.
Deloitte LLP
+971 4 5064892
brageorge@deloitte.com
Stephen Mollenkamp
FATCA Consulting Leader, Japan
Deloitte Touche Tohmatsu
+81 80 3367 2572
smollenkamp@tohmatsu.co.jp
Umair Hameed
FATCA FAS Leader, Middle East
Deloitte Corporate Finance Ltd
+971 50 658 4486
uhameed@deloitte.com
Karon Wan
FATCA Consulting Leader, Asia Pacific (excl. Japan)
Deloitte Touche Tohmatsu
+852 28526562
karonwan@deloitte.com.hk
U.S. National contacts
U.S. regional tax information reporting contacts
Denise Hintzke
Central
Tracey Fielman
Terence Coppinger
Mid-America
Wade McKnight
Anthony Martirano
Northeast
Terence Coppinger
Marvin Michelman
Southeast
Joan Millett
West
Jeff Wax,
Cindy Hustad
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