As a part of our commitment to keeping you informed on the US Internal Revenue Service’s (IRS) progress on the FATCA rules, and the industry’s responses, we would like to make you aware of the following recent development. We hope this information is useful. If you have any questions on these developments, or any other aspect of FATCA, please do let us know.
The US Treasury and the IRS released on 20 February two key updates to FATCA and related regulations:
These regulations are lengthy (over 550 pages) and contain numerous changes that will likely impact how FATCA is implemented by foreign financial institutions around the world. PwC will provide a detailed analysis shortly. In the meantime, please see the high level summary below.
The regulations contain over 50 discrete amendments and clarifications to the FATCA regulations issued in January 2013 to provide clarifications and to take into account certain stakeholder suggestions regarding ways to further reduce burdens consistent with FATCA's compliance objectives. Modifications to the final regulations are also intended to harmonise FATCA with the approach taken in the IGAs (Intergovernmental Agreements).
Key amendments and clarifications include those relating to:
The regulations also harmonise the requirements contained in FATCA with the pre-FATCA rules under Chapters 3 and 61 and Section 3406. Chapter 3 contains reporting and withholding rules relating to payments of certain US source income to non-US persons. Chapter 61 and Section 3406 address the reporting and withholding requirements for various types of payments made to certain US persons.
The changes made by the coordinating regulations relate to four key areas:
The Internal Revenue Service (IRS) and the US Department of the Treasury issued Notice 2013-43 (Notice) announcing revised timelines for implementing various provisions under the Foreign Account Tax Compliance Act (FATCA). The Notice also provides additional guidance concerning financial institutions in jurisdictions that have signed an intergovernmental agreement (IGA) but have not yet enacted legislation bringing it into force.
By extending the timelines, the Notice also provides (1) the IRS more time to issue the necessary forms, guidance, clarification, and interpretation, (2) Treasury and potential FATCA partners more time to agree to and sign IGAs and (3) entities around the world more time to implement changes in order to be FATCA / IGA compliant.
Please refer to the Global IRW Newsbrief for more details.
On 14 May 2013, the government of Singapore announced that it plans to bolster its framework for international cooperation to combat cross-border tax evasion. In a joint release, the Ministry of Finance (MoF), Monetary Authority of Singapore (MAS) and Inland Revenue Authority of Singapore (IRAS) outlined four key measures intended to strengthen Singapore's exchange of information (EOI) framework.
Singapore will extend EOI assistance to all existing double tax agreement partner jurisdictions, without having to update the terms of its bilateral tax agreements.
Singapore will sign the Convention on Mutual Administrative Assistance in Tax Matters. The Convention, which was developed jointly by the Council of Europe and OECD, is designed to facilitate better international cooperation in the administration of national tax laws, whilst respecting the fundamental rights of taxpayers, and provides for administrative cooperation between member jurisdictions in the assessment and collection of taxes. By signing the Convention, Singapore will expand its network of EOI partners by 11 jurisdictions, which will include, most notably, the United States.
Singapore will allow the IRAS to obtain bank and trust information from financial institutions without the need for a court order. This change will streamline the administration of the EOI framework. It should, however, be noted that the rest of the current safeguards will remain in place, such that taxpayers' rights will continue to be observed.
Singapore will conclude a Model 1 FATCA intergovernmental agreement (IGA) with the United States. The IGA will streamline compliance with the FATCA provisions by foreign financial institutions (FFIs) in Singapore. Significantly, under the Model 1 framework, FFIs will report account information to the Singapore authorities, who will exchange the information automatically with the US Internal Revenue Service (IRS). This will eliminate the need for Singapore FFIs to enter into FATCA agreements individually with the IRS and to report account information directly to the IRS.
Singapore plans to make by year's end the legislative amendments necessary for the implementation of these changes.
Impact on Institutions in Singapore
Globally, there has been a push towards greater transparency and information reporting in order to combat tax evasion. A degree of this responsibility is now placed on intermediaries such as financial institutions. The latest changes reflect Singapore's commitment towards meeting international standards and best practices. While some of these changes represent a significant departure from current norms, for example, assisting with recovery of foreign tax claims, they merely reflect the reality that the international business and tax landscape has changed. As long as the increased reporting is balanced with the necessary safeguards for taxpayers such that legitimate planning is still respected, these changes are very much a positive development in international tax.
More specifically, Singapore's decision to conclude a Model 1 FATCA IGA highlights the importance for Singapore-based financial institutions to ensure compliance with global tax transparency standards, and illustrates the importance of a robust implementation of the US Foreign Account Tax Compliance Act (FATCA) provisions by institutions in Singapore, as well as the importance of taking the necessary steps to deal with the forthcoming introduction of tax evasion as a money laundering predicate offence.
If you have any questions on these specific developments or the wider issues, please contact:
|PwC Singapore Tax Contacts|
|Sunil Agarwal +65 6236 3798||Elaine Ng +65 6236 3627|
|Paul Cornelius +65 6236 3718||David Ong +65 6236 3792|
|Nicole Fung +65 6236 3618||Shantini Ramachandra +65 6236 3823|
|Abhijit Ghosh +65 6236 3888||Alan Ross +65 6236 7578|
|Mahip Gupta +65 6236 3642||David Sandison +65 6236 3675|
|Ho Mui Peng +65 6236 3838||Tan Boon Foo +65 6236 3632|
|Anuj Kagalwala +65 6236 3822||Tan Ching Ne +65 6236 3608|
|Koh Soo How +65 6236 3600||Tan Hui Cheng +65 6236 7557|
|Paul Lau +65 6236 3733||Tan Tay Lek +65 6236 3768|
|Lennon Lee +65 6236 3728||Teo Wee Hwee +65 6236 7618|
|Carrie Lim +65 6236 3650||Chris Woo +65 6236 3688|
|Lim Hwee Seng +65 6236 3118||Yip Yoke Har +65 6236 3938|
|Lim Maan Huey +65 6236 3702|
|PwC Singapore FATCA contacts|
|Michael Brevetta +65 6236 3801|
|Mark Jansen +65 6236 7388|
|Julia Leong +65 6236 7378|
9 May 2013 - No safe havens for offshore tax cheats
The Australian (ATO), UK (HMRC) and US (IRS) tax authorities announced overnight that they are working together to analyse data revealing the extensive use of complex offshore structures by wealthy individuals and companies to conceal assets and evade taxes. The three nations indicated that they have acquired data that they allege indicates extensive use of entities organised in several jurisdictions, including Singapore. The relevant press releases are as follows:
At this stage it is unclear from where the 400 gigabytes of data was obtained. The sheer volume of information, however, dwarfs the 260 gigabytes previously gathered by The International Consortium of Investigative Journalists, who last month started publishing the findings of their research globally.
Full analysis of the data will take a significant amount of time but early results show the use of companies and trusts in a number of territories around the world including: Singapore, the British Virgin islands, the Cayman Islands and the Cook Islands.
The Australian and UK tax authorities have already announced the identification of 100 tax payers respectively and confirmed that investigations are underway as a result of their analysis.
More than 200 accountants, lawyers and other professional advisors have so far also been identified in the data. The ATO, HMRC and IRS have confirmed that the role of advisors in setting up these structures will be scrutinised closely.
Singapore Government Issues Press Release
In response, Singapore's Ministry of Finance (MoF), the Inland Revenue Authority of Singapore (IRAS) and Monetary Authority of Singapore (MAS) have issued a joint press release reaffirming Singapore's commitment to working with the international community to fight cross-border tax offences.
"We stand ready to partner the tax authorities of Australia, UK and US in the investigation of structures that may be involved in wrongdoing."
The Singapore authorities are also looking into whether any tax offences have been committed in Singapore. The press release is available here.
Local Impact of a Global Issue
These recent announcements further highlight the importance for Singapore based financial institutions to ensure compliance with global tax transparency standards, and illustrates the importance of a robust implementation of the US Foreign Account Tax Compliance Act (FATCA) provisions by institutions in Singapore.
11 April 2013 - New multilateral action to combat tax evasion
On 9 April, the Government of the United Kingdom announced an agreement with France, Germany, Italy and Spain to develop and pilot multilateral tax information exchange arrangements. Under the agreement, a wide range of financial information will be automatically exchanged between the five countries. The agreement is to help catch and deter tax evaders as well as to provide a template for wider multilateral automatic tax information exchange.
The pilot will be based on the Model Intergovernmental) developed between the five countries and the United States for purposes of the provisions of the US Foreign Account Tax Compliance Act (FATCA). The intention is to help ensure that international tax evasion is tackled in a way that minimises costs for both businesses and governments.
For more details, refer to the news brief.
11 April 2013 - Draft Form 1042 released
The US IRS has released a new draft Form 1042 (Annual Withholding Tax Return for US Source Income of Foreign Persons). The form is available here.
All early releases of draft forms, instructions, and publications are available at IRS website.
9 April 2013 - IRS releases draft Form 8957
The US Internal Revenue Service (IRS) released draft Form 8957, Foreign Account Tax Compliance Act (FATCA) Registration, for public review and comment on 5 April 2013. No accompanying instructions were included. Form 8957, when issued in final form, may be used by foreign financial institutions (FFIs) to register for FATCA purposes. In the IRS release of the draft Form 8957, the IRS reiterated its intention to utilise an on-line registration portal (Portal) for FATCA registration. The Portal is expected to be available in July 2013.
On 9 April 2013, the IRS also released more information about the schema of its so-called December List - a published list of FFIs that have registered with the IRS by October 25 and their corresponding global intermediary identification number (GIIN). The on-line Portal and Form 8957 (when finalised) will enable FFIs to obtain a GIIN and be included in the list.
More information can be found at IRS web site.
You may refer to this news brief for more information about these developments.
8 April 2013 - IRS releases draft Form 8957
The announcement appears on the IRS web site.
Form 8957 is to be used by a foreign financial institution to apply for status as a foreign financial institution as defined in IRC 1471(b)(2). The draft form was released for public review and comment and should not be printed and submitted by financial institutions in an attempt to register for FATCA. The IRS suggests that financial institutions use the online registration portal that will be available in July 2013. The questions that will be presented in the online process will be similar to the questions shown on the draft form, but will be presented differently to facilitate electronic completion of the process.
A copy of the form is available here.
8 April 2013 - Draft Form 1042-S released
The US IRS has released a new draft Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding). The form is available at IRS website.
17 January 2013 - Final FATCA regulations issued
On 17 January 2013, the Treasury and IRS issued comprehensive final regulations implementing the information reporting and withholding tax provisions of FATCA.
The final regulations provide additional clarity for financial institutions and governments by finalising the processes for US account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and US withholding agents.
The U.S. Treasury press release can be found here.
The official pre-publication PDF version of the final regulations is available here.
We, together with PwC's global FATCA network, are reviewing the regulations and will be producing a series of Global IRW Newsbriefs in the coming days and weeks. We will provide our insights on the differences between the proposed and final regulations and how the final regulations will impact your business. We will also be hosting webcasts reviewing the regulations in more detail.
We will provide you with additional updates on the regulations and any new PwC thought leadership and as our team reviews and interprets the rules.
28 November 2012 - FATCA IGAs signed with Denmark and Mexico
On 19 November 2012, the United States signed FATCA Intergovernmental Agreements (IGAs) with Denmark and Mexico.
Copies of these IGAs are attached for your reference.
The full listing of FATCA model and signed agreements, statements and related documents can be found on the US Treasury FATCA Resource Centre website: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx
On 14 November 2012, the US Department of the Treasury (Treasury) published the second model intergovernmental agreement (IGA) (Model 2) for implementing the broad-ranging provisions of the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010 with the goal of diminishing tax evasion by US taxpayers.
Treasury released the first model IGA for implementing FATCA in July 2012 (Model 1) to address non-US laws that prohibited foreign financial institutions (FFIs) from complying with the reporting and withholding provisions of FATCA. The US recently executed bilateral IGAs with Denmark and the United Kingdom, both of which are based substantially on the provisions of Model 1.
Model 1 generally relies on government-to-government exchange of information to address concerns that foreign laws prohibit many FFIs from reporting account holder information to the IRS. Model 2 provides an alternative solution to these restrictions, by providing another framework to allow reporting directly to the US under FATCA.
PwC's detailed commentary on Model 2 is attached for your reference here.
On 14 November 2012, the US Treasury published the Model Intergovernmental Agreement for Cooperation to Facilitate the Implementation of FATCA (Model 2). We will provide a comparative analysis of the Model 1 and Model 2 IGAs as soon as possible.
On 9 November 2012, the Singapore's Ministry of Finance (MOF) and the Monetary Authority of Singapore (MAS) issued a joint press release indicating that the Singapore government is in talks with the US Treasury regarding the conclusion of a FATCA IGA. A private sector advisory panel will be formed to provide industry inputs on the process.
A copy of the press release is available here.
In a press release, The U.S. Department of the Treasury announced that it is engaging with over 50 jurisdictions to improve international tax compliance and implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Singapore is among the jurisdictions engaged in dialogue with the Treasury.
The full announcement is available here: http://www.treasury.gov/press-center/press-releases/Pages/tg1759.aspx
The 2010 introduction of FATCA requires overseas financial institutions to enter into an agreement with the U.S. Internal Revenue Service (IRS), and provide details to the IRS about the affairs of certain customers with links to the U.S. If these rules are not followed, the financial institutions can have 30% of income and sales proceeds from U.S. assets withheld by the U.S. government.
In response to this latest announcement, PwC Singapore has the following comments:
Mark Jansen, PwC Asia Pacific FATCA Lead Partner:
'We welcome the announcement by the US Treasury that it is actively engaged in a dialogue towards concluding an intergovernmental agreement on FATCA with Singapore. This approach should reduce the impact of the FATCA rules on Singapore financial institutions.'
Michael Brevetta, PwC Associate Director for Financial Services and U.S. Tax & Regulatory Specialist:
'The IRS's recent delay in the start date of FATCA (from 1 July 2013 to 1 January 2014), should give the Singapore government more time to negotiate the intergovernmental agreement and implement the necessary domestic laws. It also should give Singapore financial institutions more time to make the necessary systems changes to collect and report the information required by FATCA.'
2 October 2012 - US Treasury officials speak about FATCA in Singapore
On 26 September, the Tax Academy of Singapore hosted a briefing session on the 'Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA'. The session was intended to provide information regarding the background, operation and latest developments on FATCA and the model intergovernmental agreements (IGAs) announced by the US and several other governments. The speakers were: Manal Corwin, Deputy Assistant Secretary for International Tax Affairs, US Department of Treasury; and Michael Plowgian, Attorney-Advisor, Office of the International Tax Counsel, US Department of Treasury. In addition, a representative of the OCED Secretariat provided a brief overview of the OECD's efforts related to the exchange of information in the cross-border tax context.
Following is a summary of the presentation by Ms Corwin and Mr Plowgian.
21 August 2012 - ISDA 2012 Protocol released
The International Swaps and Derivatives Association, Inc. (ISDA) has published guidance enabling parties to amend 'Covered Master Agreements' to address the potential effects of FATCA on derivative transactions. Specifically, the Protocol carves out FATCA withholding tax from the definition of 'indemnifiable tax' in the ISDA Master Agreement, removing the need for payers to 'gross up' on amounts withheld as a result of FATCA (i.e., recipients may receive payments net FATCA withholding). Thus, the ISDA has shifted the FATCA withholding tax burden from the payer to the recipient in the view that the recipient is the sole party that has the ability to avoid the withholding tax by complying with FATCA.
Download the full commentary.
ISDA FATCA protocol website.
31 July 2012 - OECD reacts positively to IGAs
The Organisation for Economic Cooperation and Development (OECD) has welcomed the model IGAs as a step towards global cooperation to combat offshore tax evasion. OECD Secretary-General Angel Guerra praised the effort to keep compliance costs as low as possible and commented that the OECD will continue to "work closely with interested countries and stakeholders to design global solutions to global problems to the benefit of governments and businesses around the world."
Following the conclusion of negotiations for the IGA, the OECD has been asked to develop, with interested countries, an adapted version of the IGA to: (1) create a common model for information exchange among more participants; and (2) develop reporting and due diligence standards to financial institutions.
27 July 2012 - IRS comments on content of final regulations
Speaking at the District of Columbia's Bar Taxation Section annual summer luncheon, Emily McMahon, acting Treasury assistant secretary for tax policy, acknowledged that final regulations will address several concerns raised by stakeholders; the US government is considering more than 200 comment submitted in response to the proposed regulations. Ms McMahon also provided that the final regulations are being written to minimise the administrative burden on low-risk FFIs.
While conflicts with local laws present an obstacle in FATCA compliance, Ms McMahon stressed that IGAs should allow FFIs to be fully compliant. However, she admitted that not all countries perceive the need to enter into government-to-government arrangements. In response to this feedback, the Treasury also is developing an alternative framework which allows for direct FATCA reporting to the IRS.
Lastly, Ms McMahon provided that the Treasury is working to issue new forms and a FFI agreement in conjunction to the release of the final regulations.
27 July 2012 - PwC publishes commentary on model intergovernmental agreements
PwC has published commentary on the model intergovernmental agreement (IGA). In addition to providing a summary of provisions under the IGA, specific observations are provided in the areas of scope and governance, reporting, withholding and identification.
Read the full commentary here.
26 July 2012 - Model intergovernmental agreements released
The US Treasury has published a model intergovernmental agreement designed to facilitate FATCA’s information reporting and withholding provisions. The model agreement was developed in consultation with France, Germany, Italy, Spain, and the UK, each of which issued a joint statement with the US regarding information sharing for purposes of FATCA on 8 February. The governments of these countries issued a communiqué jointly with the US announcing the model agreement.
Two versions of the model agreement were published: a reciprocal version and a nonreciprocal version. Each version provides for a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of that information under existing bilateral tax treaties or tax information exchange agreements. Both versions of the model also address legal issues (including local data protection or privacy laws) that had been raised in connection with FATCA. The reciprocal version of the model also provides for the US to exchange information currently collected on accounts held in US financial institutions by residents of partner countries.
Links to the reciprocal and nonreciprocal versions of the model agreement, the joint communiqué, UK Treasury's press release and US Treasury’s press release, are provided below.
A second model agreement, reflecting the approach contemplated by the US government's joint statements with Switzerland and Japan, is expected soon.
23 July 2012 - Taiwan seeks agreement with US
Taiwan hopes for government-to-government approach to FATCA
Since February, the US Treasury and the governments of seven countries – France, Germany, Italy, Spain, the UK, Japan and Switzerland - have released joint statements on FATCA cooperation. On 12 July, representatives from Taiwan’s Financial Supervisory Commission and Ministry of Finance announced the country’s intent to sign an intergovernmental agreement with the United States on FATCA. Taiwan, which does not have a comprehensive income tax treaty with the US, hopes that a government-to-government approach will alleviate some of FATCA’s burdens for local financial institutions.
A participating foreign financial institution’s (FFI) sharing of information on accounts and account holders with the IRS, which is required under FATCA’s reporting requirements, may conflict with local privacy, bank secrecy or data protection laws. Reporting account and account holder details on a government-to-government basis may permit FFIs in a particular jurisdiction to be FATCA-compliant without violating such local laws.
Recent reports indicate that, among others, Canada, Denmark, Ireland and Luxembourg also have expressed interest in an intergovernmental approach to FATCA.
21 June 2012 - Bilateral agreements re. Switzerland, Denmark
Model intergovernmental agreement to be released
Speaking at a conference on 19 June, IRS Deputy Commissioner Michael Danilak stated that a model agreement for government-to-government cooperation on FATCA could be completed ‘much sooner than the end of the summer’ (the end of August).
Mr Danilak also noted that the IRS is considering whether foreign financial institutions would have the ability to opt out of an agreement between their jurisdiction and the United States.
Mr Danilak also noted that the IRS is working to finalise the FATCA regulations. In this context, he stated that the IRS is considering the more than 200 comment letters it has received regarding the proposed regulation issued in February, and intends to make the final rules as manageable as possible.
More countries considering government-to-government approach
Since the release of the Joint Statement on FATCA cooperation issued by the US Treasury and the governments of France, Germany, Italy, Spain and the UK on 8 February, additional countries have expressed a desire to adopt a government-to-government approach to FATCA. Recent reports indicate that the list includes, among others, Ireland, Luxembourg, Denmark, and Switzerland. Switzerland’s Federal Department of Finance noted that it has had talks with the IRS regarding a bilateral approach that it hoped would simplify the implementation of FATCA.
In his 19 June comments, IRS Deputy Commissioner Danilak noted that it is the IRS’s intention is to make the government-to-government approach available to any country interested in participating, even countries that do not have tax treaties of tax information sharing agreements with the United States. This is especially relevant in Singapore and other jurisdictions in Asia that do not have treaties in place with the US. Mr Danilak stated that, one the model agreement is released, the IRS expects ‘a flood’ of responses from interested countries.
Draft forms subject to change
The draft Forms W-8BEN, released on 6 June to reflect FATCA’s reporting and withholding requirements, are subject to change when they are finalised according comments made at a seminar on 19 June by John Sweeny, from the IRS’s Office of Associate Chief Counsel (International). Mr Sweeny expects that the draft forms are close to what will be finalised, but noted that ‘there’s still some tweaking to be done’. As such, he cautioned that he is reluctant to tell FFIs to amend their systems based on these draft forms.
For your reference, PwC’s summary of the revised Forms W-8BEN is available here.
At the same seminar, a representative of the Office of the Associate Chief Counsel (International) also stated that the IRS has received many comments from the industry regarding FATCA’s requirements to ‘refresh’ customers’ documents. Danielle Nishida indicated that the IRS is looking to reduce the number of circumstances under which such documentation must be renewed.