Things to do in June

In the northern hemisphere, the summer is typically long lazy, sunny days with not a lot going on in the world of cross border taxation.

This year is a bit different. There are a few problems out there and a couple of opportunities.

Training

For those firms that are lucky enough to be qualified intermediaries under the US regulations, now is the time to remember that you have an obligation to have a written compliance program (CP) AND that you are obligated under contract with the IRS, to communicate the policies and procedures in that CP to your employees. That's training. Its easy to overlook, but remember that every three years, you'll have to certify to the IRS that you met the terms of your contract with them.

We've written a foundation course for qualified intermediaries and launched a new tool at the Tax Compliance Toolkit - the Toolkit Academy. Subscribers to the Toolkit get the training materials for free, but you can buy this course for just ￡150. Its a quick, easy and cost effective way to tick that compliance box.

Also of note in the US securities market, the new QI Agreement became effective on January 1st 2023 with new content relating to Chapter 3 Section 1446 (a) and (f). QI's have been having problems accessing the QI Portal (QAAMS), but this issues seem to have been resolved. The IRS is spending this year transitioning some systems behind the Modernised eFile ("MeF") portal. This is leading to more confusion and problems because MeF requires that users obtain a separate identity verification account either at ID.me or login.gov before they can set up a MeF account and get ready to file. Next year (2024), Forms 1042 will be filed electronically at MeF, although for this year, paper is also allowed. The trick is that, to file these forms, non-Us financial institutions will have to obtain a series of identifiers including ITINs and Transmitter Control Codes ("TCC") in a particular order, before they can meet their reporting obligations. Lots of hurdles and many ways to trip up.

FAST

The European Union has been wrestling with cross border withholding tax for decades. Alberto Giovannini started it all by identifying his 'barriers to the free flow of capital', two of which involved withholding tax.

We all know that the EU has been in a mess, trying to figure out a way to simplify, standardise and automate this complex area. In 2013, the Tax Barriers Business Advisory Group (T-BAG) proposed a ten-step plan to do exactly that. The Report suggested two possible implementation routes - a Directive or voluntary adoption. A Directive was seen as preferable BUT typically Directives take years and require unanimous support. Voluntary adoption via the Withholding Tax Code of Conduct was eventually chosen as politically expedient and provided Member States with freedom to adopt whichever portions of the Code they deem fit. This basically failed because it allowed any EU State to claim it was following or adopting the Code whilst actually doing little or nothing in practice.

Now, we hear that the European Union is planning to propose a further analysis and proposals in June, albeit not a Directive. So, we may be a little closer to a realistic pan-EU voluntary withholding tax system.

The end of FATCA?

I have written before about the fundamental differences between FATCA and CRS. The US is a citizen-based taxation jurisdiction. Everywhere else (apart from Eritrea) uses a residency-based taxation system. CRS also addressed some of the necessary complexities of FATCA to create a more workable and robust framework.

There have been many pundits who have argued that the US should change its tax system from CBT to RBT. I am very happy to report that a New Zealand based US expat, Kathy Torpie has, inspired by one of my articles, succeeded in getting the IRS to accept the proposition that a legal change would be appropriate. Kathy submitted here request at the IRS System Advocacy management System (SAMS) and was granted a case number (66186) and, the IRS has accepted the case and recently elevated the case to "review". This may be the start of a long road, but we're hopeful that, eventually, FATCA may be revoked and the US may join CRS.

New Book

Finally, I am happy to report that my new book "Cross-Border Withholding tax - A practical guide for Investors and Intermediaries" will be published this summer. Follow the link to pre-order. Its the second edition and covers such things as the use of Distributed Ledger Technology and AI in tax as well as a series of benchmarks to be able to measure withholding tax processing more accurately and effectively.