Similarly, Treasury and IRS should drop any consideration of applying a 3-year renewal requirement for documentary evidence;

Transcription

1 L.G. Chip Harter Deputy Assistant Secretary (International Tax Affairs) Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, DC Quyen Huynh Associate International Tax Counsel Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, DC John Sweeney Office of Associate (Chief Counsel), International Chief, Branch 8 Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC Basel, 6 October 2017 St. 002/1SP Final Qualified Intermediary (QI) Agreement (Rev. Proc ) Ladies and Gentlemen: This letter provides comments of the Swiss Bankers Association (SBA) regarding the final QI Agreement (Rev. Proc ). We appreciate the opportunity to present you with our comments. Our comments may be summarized as follows: Treasury and IRS should discontinue the 3-year renewal requirement for: (1) limitation on benefits (LOB) certifications and (2) certain additional documentation used to claim treaty benefits; these renewal requirements were not included in the proposed QI agreement (Notice ) and are unnecessary in light of existing due diligence requirements for changes in circumstances; Similarly, Treasury and IRS should drop any consideration of applying a 3-year renewal requirement for documentary evidence; 'Schweizerische Bankiervereinigung Association suisse des banquiers Associazione Svizzera dei Banchieri Swiss Bankers Association Aeschenplatz 7 Postfach 4182 CH-4002 Basel T F officeesba.ch

2 New requirements for Qls to provide recipient-specific Forms should in- 2 elude restrictions to limit administrative burdens on Qls, such as limiting the time period for which an account holder may request a Form 1042-S; Treasury and IRS should allow Qls to cure hold mail instructions with documentary evidence that supports an account holder's non-u.s. status; Treasury and IRS should drop any requirement for a partnership or trust using the joint account option to certify that they have maintained the appropriate chapter 4 status at all times during each certification period; Treasury and IRS should expand the scope of entities that can benefit from the joint account option to include any foreign partnership or trust that is not an NPFFI; IRS should update and re-issue the FAQs that provided Qls with helpful guidance on several issues, but were unfortunately taken off the IRS website; and Treasury and IRS should allow Qls subject to the IGAs to apply the IGA definition of "certificate of residence" for purposes of chapters 3 and 4 under the QI Agreement. Renewal requirement for lob certifications and certain treaty documentation As expected, the final QI Agreement includes a requirement for Qls to obtain a "limitation on benefits" (LOB) certification from entities claiming treaty benefits. Unfortunately, the final QI Agreement also requires the LOB certification to be renewed every three years, similar to Forms W-8BEN-E. Furthermore, the final QI Agreement adds requirements to renew certain statements and representations ("additional documentation"), received in connection with KYC documentation, to claim treaty benefits (please refer to QI Agreement Sec (A)). For example, a certificate of residence used in connection with KYC documentation to claim treaty benefits would expire every three years. The 3-year renewal rule should not apply for the following reasons: Applying the 3-year renewal rule is inconsistent with one of the fundamental concepts behind the QI Agreement - that is, documentation other than a Form W-8 should remain valid indefinitely. The proposed QI Agreement issued last year (Notice ) did not include the 3-year renewal requirements described above. The IRS should not introduce these new, and significant, changes in the final QI Agreement.

3 The existing "change in circumstances" requirements are sufficient to address 3 situations where an entity client is no longer eligible for treaty benefits, eliminating the need for a 3-year renewal. SBA proposal: Treasury and IRS should eliminate the 3-year renewal requirement for LOB certifications and additional documentation relating to treaty claims. Potential renewal requirement for documentary evidence The preamble to the final QI Agreement states that Treasury and IRS are considering applying the same three-year validity period to documentary evidence obtained by Qls to support the account holder's claim for treaty benefits. This change would align the renewal requirements for LOB certifications with documentary evidence. As mentioned above, a fundamental concept behind the QI Agreement was the ability to rely on documentary evidence indefinitely. Furthermore, the QI has an additional obligation to monitor changes in circumstances, mitigating the need for any documentation renewal. SBA proposal: Treasury and IRS should drop any consideration of applying a 3- year renewal requirement to documentary evidence that supports an account holder's claim for treaty benefits. Mandatory Form reporting for refund requests The final QI Agreement requires Qls to furnish a recipient-specific Form 1042-S upon request to any non-us client that has suffered overwithholding, provided the QI does not refund directly to the account holder (please refer to QI Agreement Sec. 9.04). The Form 1042-S must report the payment that was subject to overwithholding. However, the QI Agreement does not provide any limits on the account holder's ability to request a refund, and there are no conditions placed on the account holder to provide, e.g., a US TIN. SBA proposal: A QI is required to provide a recipient-specific Form 1042-S upon request only if the following conditions are satisfied: 1. The request must be made before August 1 of the year after the excess withholding was applied. Qls should not be responsible for issuing amended returns (upon request) during the entire statutory period of limitations; and 2. Account holder must provide his or her US TIN (e.g. on a Form W-8BEN for individuals or W-8BEN-E for entities). The TIN requirement is reasonable since the Form 1042-S must include the TIN when filed with the account holder's tax return (Form 1 040NR for individuals; Form 1120-F for entities) to support the claim for credit.

4 Hold mail instruction 4 A hold mail instruction essentially invalidates documentation (Forms W-8 and documentary evidence) provided by an account holder. Regulations issued earlier this year provided inconsistent standards for "curing" such instructions. Recently-issued "corrections" to those regulations, however, clarify that a hold mail instruction will be cured only with documentary evidence establishing residence in the country in which the person claims to be a resident for tax purposes (please refer to Temp. Reg T(c)(38)(ii)). Unfortunately, the IRS did not accept industry comments that documentary evidence supporting non-u.s. status is a sufficient cure. SBA proposal: Allow Qls (and other withholding agents) to cure hold mail instructions with documentary evidence that supports an account holder's non U.S. status. Certifications from certain partnerships and trusts treated as joint accounts Qls are now required, for the first time, to obtain certifications from certain partnerships and trusts that they have maintained the appropriate chapter 4 status at all times during each certification period (please refer to QI Agreement Sec. 4.05(B)(1 )). This certification, however, appears to be redundant and unnecessary. Qls are already required to obtain FATCA certifications from partnerships and trusts in order to determine if such client is eligible for joint account treatment. Furthermore, the QI may rely on these certifications unless it has reason to know it is incorrect, and the partnership or trust must update its certification if its FATCA status has changed. Finally, the QI Agreement is silent on the consequences of not obtaining such a certification. SBA proposal: Treasury and IRS should drop any requirement for a partnership or trusts using the joint account option to certify that they have maintained the appropriate chapter 4 status at all times during each certification period. Restricted application of Joint Account Treatment The QI Agreement restricts application of Sec to entities that have the following chapter 4 statuses: certified deemed-compliant FFls (other than a registered deemedcompliant Model 1 IGA FFls), owner-documented FFls with respect to QI, an exempt beneficial owner, an NFFE, or is covered as an account that is excluded from the definition of financial account under Annex II of an applicable IGA or under Reg (a). The IRS may, understandably, wish to prevent NPFFls from enjoying the benefits of joint account reporting under Sec However, there is little reason to exclude entities such as Reporting Model 1 or 2 FFls. Based on informal comments from Treasury and IRS, it appears that Reporting Model 1 or 2 FFls are expected to enter into withholding agreements (and become withholding foreign partnerships or trusts) since they have already taken the plunge to register with the IRS. But there is a major difference between registering on the IRS FATCA portal and submitting to the complex documen-

5 tation, withholding, and independent review requirements of a withholding partnership 5 or withholding trust agreement. SBA proposal: Treasury and IRS should expand the scope of entities that can benefit from Sec to include any foreign partnership or trust that is not an NPFFI. Updating and re-issuing the QI frequently asked questions (FAQs) The initial QI Agreement (Rev. Proc ) raised several questions for Qls and external auditors. In response, the IRS issued an extensive set of FAQs that addressed these questions with much-needed guidance. The FAQs included guidance on, for example, pre-completion of Forms W-8 (FAQ Part IV, #10) and providing treaty benefits when the KYC documentary evidence is issued by a country different from the beneficial owner's country of residence (FAQ Part IV, #20-23). Unfortunately, the IRS has removed the FAQs from its website. SBA proposal: The IRS should update and re-issue the QI FAQs. Definition of "certificate of residence" The term "certificate of residence" (CoR) is defined differently under Treasury regulations and the Intergovernmental Agreements (IGAs). Under the regulations, a CoR must be issued by an appropriate tax official of the treaty country, and the CoR must indicate that the taxpayer filed its most recent income tax return as a resident of that country (within the meaning of the applicable tax treaty). The CaRs of many countries, however, do not include such detailed information or are issued by different authorized government bodies. In contrast, the IGAs have a more simplified definition of a CoR. Under the IGAs (Annex I, Part VI.D), a CoR must be issued by an authorized government body (such as a government agency or municipality) of the jurisdiction in which the payee claims to be a resident. Information regarding tax return filings is not required. Consequently, the IGA standard provides more flexibility in the types of documents that may be accepted as CaRs and considers different procedures and content of such statement in the various IGA countries. When financial institutions are subject to a mix of IRS regulations (chapter 3 and 4), the QI Agreement, and the IGAs, a standardized definition of key terms - such as a CoR - is needed. It is unworkable to have inconsistent requirements. Furthermore, we note that the QI Agreement (Sec (B)(1)) includes coordination rules for chapter 3 and chapter 4 documentation requirements. Although this section allows documentary evidence under the IGA to be used for chapter 4 purposes, the QI Agree-

6 ment should further clarify that such documentary evidence may be used for chapter 3 6 purposes as well. SBA proposal: Treasury and IRS should allow Qls subject to the IGAs to apply the IGA definition of "certificate of residence" for purposes of chapters 3 and 4 under the QI Agreement. Thank you for considering our comments. Please do not hesitate to contact us (petrit.ismajli@sba.ch / ) if you have additional questions about this letter. i1:~ ~:~~~ASSOCiat[ I. O~ pe.; Urs KaJW