Ho, ho, ho! IRS fills financial industry Christmas stockings with relief and extended implementation deadlines - Banking blog

IRS fills financial industry Christmas stockings with relief and extended implementation deadlines

On 13 December 2018, the US Internal Revenue Service (IRS) issued proposed regulations reducing the burden for financial institutions under the QI and FATCA regimes (hereafter referred to as the proposed burden reduction regulations).

The proposed burden reduction regulations provide welcome relief with respect to various obligations under the QI and FATCA regimes that worried the financial industry in light of the upcoming responsible officer certification and the expiration of certain transitional relief provisions. This blog summarizes the aspects of the proposed burden reduction regulations we consider most relevant for non-US financial institutions.

Narrowing the scope of payments subject to FATCA withholding

The proposed burden reduction regulations would:

  • Eliminate the requirement for FFIs to apply FATCA withholding on gross proceeds from the sale of US securities paid to nonparticipating FFIs or recalcitrant account holders, which was originally scheduled to come into effect on 1 January 2019
  • Defer the introduction of FATCA withholding on foreign passthru payments made to nonparticipating FFIs or recalcitrant account holders and announced that FFIs would not need to comply with this requirement before the date that is two years after the date of publication of final regulations defining the term foreign passthru payment.

Relief regarding certain aspects of QI and FATCA due diligence obligations

The proposed burden reduction regulations would:

  • Extend the time for QIs to obtain treaty statements with the specific limitation on benefit (LOB) provision identified for accounts documented before 1 January 2017 until 1 January 2020 (rather than 1 January 2019 as currently required by the 2017 QI agreement)
  • Add exceptions to the three-year validity period for treaty statements provided by tax-exempt organizations (other than tax-exempt pension funds or pension trusts), governments and publicly traded corporation, even though QIs will need to decide whether the application of these exceptions are worth the additional efforts in relation to distinguishing between client groups depending on the LOB provision certified
  • Confirm that QIs are only expected to apply an actual knowledge standard when validating the LOB provisions claimed by their account holders on an IRS Form W-8BEN-E or a treaty statement
  • Clarify that a permanent residence address subject to a hold mail instruction must be cured with documentary evidence supporting the person’s claim of foreign status (if no treaty benefits are claimed) or the person’s residence in the treaty country (if treaty benefits are claimed)
  • Clarify that a hold mail instruction does not include a request to receive all correspondence electronically.

Clarification regarding definition of investment entity

The proposed burden reduction regulations:

  • Reinforce in the preamble the IRS’ view that entities that have entered into a discretionary asset management mandate with a bank or another FFI qualify as professionally managed investment entities (rather than as passive NFFEs), if at least 50% of their gross income is attributable to investing and trading in financial assets
  • Would clarify that an entity is not professionally managed solely because it invests all or a portion of its assets in a mutual fund, an exchange-traded fund, or another collective investment vehicle that is widely held and subject to investor-protection regulation.

According to the preamble to the proposed burden reduction regulations, non-US financial institutions may generally rely on the proposed rules until final regulations are issued and the QI and FFI agreements are updated, as necessary.

Many of the provisions in the proposed burden reduction regulations will be a welcome relief for non-US financial institutions, in particular in the withholding area where no one in the market seemed to be ready to start withholding on gross proceeds as of 1 January 2019. However, the IRS and Treasury indicated that they remain concerned about the existence of recalcitrant and NPFFI account holders and thus only extended the implementation date for foreign passthru payments instead of eliminating it. In the end, the relief is much better than a lump of coal!

As we look forward to the new year, we recommend affected institutions review their existing processes to ensure that these are compliant with the due diligence aspects covered above as many QIs and FFIs may not have paid sufficient attention to those rules in the past (e.g. the proper curing of permanent residence addresses subject to hold mail instructions).

If you would like to discuss more on this topic, please do reach out to one of the contacts below.



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.


Karim Schubiger_110x110

Karim Schubiger – Director, Financial Services Tax & Legal

Karim leads the Tax Transparency team in the Suisse Romande and Ticino markets within the Financial Services Tax & Legal practice, responsible for services related to QI, FATCA, CRS, and 871(m). He is a technical advisor and subject matter expert to financial institutions in the banking, trust, and insurance sectors. Prior to joining Deloitte, Karim worked for eight years in support teams of Swiss banks, in particular in areas such as operations, project and change management as well as operational taxes.


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.


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.



Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Comments are moderated, and will not appear until the author has approved them.