In response to the ongoing COVID-19 crisis, taxing authorities around the world have recently delayed due dates for submission of FATCA and CRS reports or have implemented legislation to address business continuity, liquidity and workforce retention issues that may have other tax information reporting and withholding implications. Despite this, the U.S. Internal Revenue Service (IRS or the Service) recently announced on April 14, 2020, that it will continue FATCA examinations and enforcement efforts during this crisis and may even begin new exams under its Large Corporate Compliance Program for large case exams or review campaigns and issue-specific enforcement efforts aimed at medium-size taxpayers.
Following the IRS’ lead, Cayman Islands also issued an Industry Advisory on April 15, 2020 extending the deadline for filing FATCA reports to Nov. 16, 2020, but moved forward with publishing an advance draft of the new CRS Compliance Form that FIs must file by Dec. 31, 2020 despite the ongoing state of emergency. Below is a more detailed discussion of new developments in the U.S., Cayman Islands, Luxembourg and other key jurisdictions worth noting.
On April 16, 2020, the IRS published guidance in the form of a FATCA Frequently Asked Question (see FATCA FAQ 5) announcing an extension until Dec. 31, 2020 for countries with Model 1 intergovernmental agreements to share information with the U.S. government as required under the Foreign Account Tax Compliance Act. This extension will likely serve as an impetus for other Model 1 jurisdictions besides Cayman Islands, for example, to delay the due date for FIs to file FATCA reports in their respective countries even further since their FATCA reporting deadlines are predicated on the date that governments share or exchange information with the U.S.
Despite providing additional time for filing FATCA reports, the IRS also announced that it would continue to initiate new FATCA examinations although it has suspended new examinations for most other areas during this national state of emergency. In a memo issued by the Commissioner of the IRS Large Business & International Division, Doug O'Donnell, the Service made it clear that it still plans to initiate new examinations under its Compliance Assurance Process program, in which taxpayers elect to be audited in real-time throughout the year. Furthermore, it will also initiate new examinations under its Large Corporate Compliance program, which selects cases for the largest and most complex companies. Finally, and perhaps most importantly for taxpayers in the middle market, the Commissioner announced that the IRS would review most of its campaigns or issue-specific enforcement efforts aimed at medium-size taxpayers.
These announcements follow IRS published Notice 2020-18, superseding Notice 2020-17, which provided an automatic extension of time until July 15, 2020 for taxpayers to make tax payments or to file certain specified tax returns that were originally due on April 15, 2020. However, these relief provisions did not apply to certain information returns, including IRS Forms 1042, 1042-S and 8966 (FATCA Report), which were originally due on March 16, 2020 and March 31, 2020 respectively. As a result, many taxpayers were still unable to file returns timely and may be subject to assessments of additional penalties and interest unless subsequent legislation is passed or other relief granted going forward.
Recognizably, participation in certain COVID-19 relief programs and planning transactions will likely have other U.S. tax reporting and withholding implications for companies seeking debt forgiveness or bankruptcy relief, converting workers to independent contractors or making certain distributions. It is therefore important for companies implementing COVID-19 planning strategies to evaluate their reporting and withholding obligations now, with respect to these transactions and to collect tax-withholding certificates from payees now as needed to avoid inquiries, penalties and examinations by the IRS going forward.
The Cayman Islands’ Industry Advisory dated April 15, 2020 has extended the deadline for filing FATCA reports yet a second time this year, first from May 31st to September 18th and now from September 18th to Nov. 16, 2020. Cayman also previously announced that it intends to launch a new and more streamlined DITC portal for submission of FATCA and CRS reports in June of this year. Finally, and perhaps most importantly, Cayman has published an advance copy of its new CRS Compliance Form that will be required for all Cayman Reporting FIs and will be due on Dec. 31, 2020. The form has yet to be finalized, but is a new filing requirement with additional data points that taxpayers will need to plan for to ensure compliance.
The additional extension of time to file Cayman FATCA reports comes on the heels of the IRS’s announcement in FAQ #Q5 published on April 16, 2020 (discussed above) that it would give governments of Model 1 jurisdictions until Dec. 31, 2020 to share or exchange information with the U.S. on reportable accounts or investors of FIs. It is therefore critical that FIs evaluate new data requirements and build in sufficient lead-time to address Cayman’s new CRS Compliance form today. Additionally, refer to our prior coverage of recommended action steps for FIs to prepare for Cayman’s launch of its new DITC system in June.
While the due date for filing Luxembourg FATCA and CRS reports has remained unchanged, Luxembourg FIs should be mindful of other important developments that may affect their FATCA and CRS reporting obligations. Particularly, on Feb. 20, 2020, Luxembourg passed draft legislation (Bill 7527) proposing to amend FATCA and CRS regulations to require FIs to:
- File CRS nil reports in the absence of reportable accounts or be subject to lump sum fines of EUR 10,000;
- Keep records of actions taken and supporting evidence used to ensure due diligence and reporting obligations have been met, for a period of ten years; and
- Set up policies, controls, procedures and IT systems (proportionate to and commensurate with the size of the FI) to ensure the fulfilment of FACTA and CRS due diligence and reporting obligations.
Organizations registered as Luxembourg Reporting Financial Institutions will need to build in sufficient lead-time to develop systems and procedures for documenting and storing evidence of its efforts to comply with due diligence and reporting requirements.
Besides the U.S., Cayman, and Luxembourg, several other jurisdictions have also responded to the ongoing COVID-19 crises by extending filing deadlines or granting other relief. Bermuda’s Tax Authority, for example, has extended the due date for filing FATCA and CRS reports from March 31, 2020 to July 15, 2020. Likewise, India and Malta have both extended their filing deadlines to June 30, 2020 and Jersey is no longer requiring compulsory nil reporting for 2019 FATCA reports.
As tax authorities around the world continue to respond to the COVID-19 crisis, it is imperative that companies have processes for ongoing monitoring of new developments and for implementation and communication of changes throughout the organization. Being able to quickly identify and adapt to change is key to success in this environment of economic uncertainty. We await additional guidance!
To learn more about RSM’s FATCA and CRS services or our COVID-19 resources, please refer to our website.