FATCA and QI certifications: the good, the bad and the ugly - Banking blog

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Industry asked for more time to make the FATCA and QI Responsible Officer (RO) certifications and it appears as though the IRS have listened, but at what cost? While some of the major issues have been addressed, it becomes more and more apparent that the FATCA and QI RO certifications will be onerous and will require significant attention from the ROs and their teams.

The Good: Welcome extensions to the certification deadlines 

On 22 February, the IRS announced a welcome extension to the QI certification deadline. This led many practitioners to question if the certifications required under FATCA, due as early as 1 July 2018, might also be subject to extension. On 16 March, the IRS answered this question as follows:

  • QI RO certification for a QI that selects 2015 or 2016 for its periodic review or that is applying for a waiver: 1 September 2018
  • QI RO certification for a QI that selects 2017 for its periodic review: 1 March 2019
  • FATCA RO certification: Earliest 1 October 2018 (based the IRS announcement that FFIs will have at least three months to submit the certification after the respective functionality in the IRS portal is deployed, which is announced for beginning of July 2018 at the earliest).

Even though many industry participants hoped for an alignment of the QI and FATCA deadlines, ROs will definitely welcome the extra time granted. 

Nevertheless, this should not result in ROs extending their summer holidays; time is running and financial institutions should continue preparing to be ready when the big day arrives.

More Good: Draft certification language released 

In an effort to assist ROs in preparing to complete the FATCA certifications, the IRS published the draft certification forms. These forms detail the questions the RO will be required to answer as part of their certification; addressing the specific situation of and requirements for different types of FFIs.

The certification drafts can be broadly divided into two groups: certifications of preexisting accounts, so-called COPAs (thanks for another acronym!), and periodic certifications

A COPA is only required from a limited number of FFI types including participating FFIs, reporting Model 2 FFIs and also from sponsors on behalf of their sponsored FFIs. As part of the COPA, the relevant RO must certify that the due diligence for all preexisting accounts was completed, including the application of the presumption rules where the FFI was unable to document the client. Further, the RO must confirm that there were no practices and procedures to assist clients with the avoidance of FATCA.

A periodic certification is required from a broader group of entities. In addition to the FFIs that must already submit a COPA and thus will end up with two certifications, this also includes other registered-deemed compliant FFIs, trustee-documented trusts in Model 2 IGA countries and sponsored closely held investment vehicles not accessing the status via Annex II a Model 1 IGA. ROs of most deemed-compliant FFIs must only certify that all requirements for the status were met. An RO of a participating FFI, reporting Model 2 FFI, or a Sponsor must either certify that the FFI had effective internal controls or provide a “qualified” certification. In simple terms, the first one is a confirmation that the FFI complied with all FATCA obligations while the second one is required if there were any material lapses. We will discuss this difference in more detail in our next QI blog.

The Bad: Some points of concern and uncertainties

While the release of the draft certifications reduces the uncertainty around the FATCA certifications and puts ROs in the position to better prepare for them, several points of concern and uncertainty remain:

  • Interestingly, the drafts require the RO to confirm either that he or she is completing the certification, that he or she is unable to do so or that he or she is not required to do so. It is unclear what purpose this question serves and under what circumstances an RO would select any of the latter two answers.
  • In the introductory part of the periodic certification, the RO must describe the FFI’s business in a free text field (max. 1’000 characters). As the IRS is not giving any indications about what they expect in terms of key elements and detail, ROs will likely take different approaches with respect to this aspect of the certification. In our view, ROs of multiple FFIs should not underestimate the effort to prepare these potentially lengthy descriptions.
  • Similarly, there are additional free text fields in the remainder of the certification where ROs must provide details about any failures and how these were resolved, again without the IRS giving any further guidance.

The Ugly: Further coordination required between IGAs and the U.S. Treasury Regulations?

Unfortunately, the drafts are partially incompatible with respect to the nonreporting FFI categories in the IGAs. Looking specifically at Switzerland, we have identified the following issues that may present a headache for the financial services community.

Firstly, there does not appear to be any certification for use by Swiss investment advisers. The second impacts many Swiss funds, most of which benefit from the “certain collective investment vehicles” status in the IGA. While the IRS released a draft certification for qualified collective investment vehicles, (i.e. the equivalent status under the U.S. Treasury Regulations) many Swiss funds will not be able to use that certification, as the underlying requirements for the two statuses are slightly different. Likely, the IRS just forgot about the IGA specifics, however, it is unclear at this point in time whether the IRS will amend the certifications or how else this situation will be resolved.

Despite the welcome delays and the areas where potentially further information may be required, we recommend that ROs identify the certification versions relevant for them, familiarize themselves with the questions and prepare as much as possible with the currently available guidance.

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Markus Weber - Partner, Financial Services Tax Leader Switzerland

Markus heads the Financial Services Tax practice. He has more than ten years of experience in advising financial institutions in the banking, insurance and asset management sector, covering the full range of relevant taxes. Prior to joining Deloitte, he was the managing director of a fund management company, followed by a role as executive director in the group tax department of a leading Swiss bank, where he was responsible for compliance with cross-border U.S. tax regulations.

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Brandi Caruso - Director, Financial Services Tax 

Brandi heads the Tax Transparency offering within the Financial Services Tax practice across Switzerland, responsible for services related to QI, FATCA, CRS, and 871(m). She is a technical advisor and a subject matter expert to a number of Swiss-based trust companies and banks and leads the Deloitte Trust Forum. She has more than 15 years of experience with Deloitte in the US, UK, and in Switzerland.

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Glen Lovelock - Senior Manager, Financial Services Tax

Glen is a Senior Manager in the Financial Services Tax practice. Prior to recently joining Deloitte, he was Head of Tax Operations at a multi national global private bank based in Switzerland. He has over 15 years relevant experience and has had direct exposure to the QI regime since inception in 2001. In addition to acting as QI, FATCA and CRS subject matter expert for various non-U.S. financial institutions, Glen also spent nine years working as a dedicated European tax resource on behalf of a U.S. financial institution.

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Robin King blog

Robin King - Manager, Financial Services Tax

Robin is a Manager working in Financial Services Tax. He is currently advising leading Swiss universal and private banks, acting as subject matter expert in the area of QI, FATCA and CRS. Robin is the author of several articles on CRS. Prior to joining Deloitte, he worked as a cross-border tax compliance expert at a Swiss private bank.

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