Top 3 Tax Takeaways from KPMG Financial Services Tax Conference
Takeaways from KPMG Information Reporting and Withholding (IRW) Hot Topics
Firstly, I would like to thank the KPMG team for providing a detailed and informative session. Danielle Nishida, Cyrus Daftary and Laurie Hatten-Boyd spoke on pending guidance, presidential green book proposal, FATCA/CRS updates and U.S. Reporting Updates. I have summarized my top 3 tax takeaways from this session but for more information, I would recommend that you reach out to the team at KPMG.
3 Tax Takeaways
- Complying with 1446(f) Regulations
- Proposed Crypto Currency Regulations
- Biden's Green Book Proposal
Withholding Tax Section 1446 (f)
The final 1446(f) regulations for withholding on publicly traded partnerships (PTPs) continue to be major topic dominating this year's tax conferences. The final regulations under code section 1446(f) were released by the Treasury Department and Internal Revenue Service (IRS) on the 7th of October last year and became effective on 29 January 2021.
The final regulations stipulate that transferor’s broker, including a clearing organization and an executing broker, must withhold 10% of gross proceeds related to the transfer of partnership interest (including a PTP) unless an exception applies.
Challenges of complying with 1446 (f) regulations
Within the pending guidance, there are a few items that overlap and impact the industry’s ability to comply with the 1446(f) regulations and apply the appropriate withholding on Partnership Interest.
- Waiting on the new QI agreement and QI rider
- Waiting on the new forms W-8BEN, W-8BEN-E, W-8ECI and W-8IMY
- Waiting on the revised form1042-S with new income codes
- Waiting on the final regulations on partnership reporting.
With rules related to withholding obligation all set to go into effect on January 1, 2022 many institutions may have a short window to implement changes for as we are already past this year’s half way mark.
Proposed Crypto Currency regulations
Although the regulations are not final, proposed rule expands broker reporting to include sales of crypto assets.
- Definition of broker would include US crypto asset exchanges and hosted wallet providers.
- FATCA reciprocal reporting, including FATCA reporting through IGA partners will be expanded to include crypto assets
- No other reciprocal FATCA reporting proposed (other than crypto products)
- What appears to be missing from proposal were the substantial US owners of certain passive entities engaged in crypto transactions in the United States
Bidens Green Book Proposal
The other items of particular interest related to the presidential green book proposals that outlined increases to the tax rates. On the plus side, there are no expected changes to the backup withholding rate. See a summary of the changing tax rates and withholding tax rates below:
- Raising the highest income tax rate for individuals to 39.6%
- Raising non-individuals to 28%
- Income under section 1446 would increase to 28% for corporations and increase to 39.6% for non-corporate entities.
The team covered various other updates related to final guidance related to 871(m), FATCA, CRS and US Reporting.
How can I be proactive?
- Step 1: Perform due diligence on your accounts.
- Step 2: Confirm you have good presumption rules where documentation is not present.
- Step 3: Assess your documentation collection process as documentation under FATCA will be required to ensure that withholding is accurately executed.
- Step 4: Implement a good process for collecting and confirming certification for exemption from withholding, where you are not relying on a Qualified Notice or a W-8ECI.
At TAINA we continue to help support clients and will lobby for additional relief to implement new validation and processes to comply with changes. Visit our website for more information on our 1446(f) solution and other changes and enhancements we have and will be making to our FATCA and CRS Validation Platform.