The 2023 Qualified Intermediary Agreement: broader scope of application and additional requirements

Detailed discussion

Background

Under FATCA, FFIs must report information on certain US account holders, as well as accounts held by certain entities owned or controlled by US persons. In jurisdictions that have entered into Model 1 IGAs, which is the case for Luxembourg, FFIs report to their local tax authority, which shares the information with the IRS. Notice 2023-11 concerns only Model 1 jurisdictions.

Before FATCA, which became effective on 1 July 2014, most jurisdictions did not require a US account holder to provide its US TIN to open an account. Model 1 IGA countries, including Luxembourg, committed, by the beginning of 2017, to establish rules requiring their FFIs to obtain US TINs from US account holders. Nonetheless, many FFIs do not have US TINs for all reportable US account holders, which impairs the IRS's ability to use the reported information. The IRS has developed a series of "TIN Codes" for FFIs to use, in lieu of a US TIN, to provide additional information about those account holders. 

On the 27 January 2023, the IRS issued an updated list of codes that can be used in case of missing US TINs, that help them to have a better understanding of the fact and circumstances behind the missing US TINs. Among this list, several codes were already existing, including: 

• 222222222: Pre-existing individual account with only US indicia being a US place of birth
• 333333333: New individual account that (1) has indicia of a US place of birth, and (2) either: (i) has a change in circumstances causing the self-certification originally obtained at account opening to be incorrect or unreliable, and a new self-certification has not been obtained, or (ii) was below the threshold for documenting and reporting the account at the time of account opening and subsequently exceeded the threshold, and a self-certification has not been obtained.
• 444444444: Pre-existing individual and entity account that (1) has US indicia other than a US place of birth, and (2) either: (i) has a change in circumstances, causing the self-certification or other documentation originally obtained to be incorrect or unreliable, and a new self-certification or other documentation has not been obtained, or (ii) was below the threshold for documenting and reporting the account at the time of account opening and subsequently exceeded the threshold, and a self-certification or other documentation has not been obtained.
• 555555555: New individual and entity account that has a US indicia other than a US place of birth, and (2) either: (i) has a change in circumstances causing the self-certification or other documentation originally obtained to be incorrect or unreliable, and a new self-certification or other documentation has not been obtained, or (ii) was below the threshold for documenting and reporting the account at the time of account opening and subsequently exceeded the threshold, and a self-certification or other documentation has not been obtained.
• 777777777: Dormant Accounts – For pre-existing accounts where there is no TIN available and the account has been dormant or inactive
• In addition, the following codes have been added to the list:
• 000222111: Pre-existing depository individual account with only US indicia being a U.S. place of birth.
• 666666666: Pre-existing entity account held by a passive NFFE with one or more controlling persons with respect to which self-certifications have not been obtained, and no US indicia have been identified in relation to any controlling persons. 

The “666666666” code was already existing in the previous list, but the definition has been amended.
 

• 999999999: Any account for which the FFI cannot obtain a TIN and none of the other TIN codes would be applicable. The use of this code indicates that an FFI has completed its review of accounts without US TINs and has in good faith applied TIN codes to records when applicable. 

When one of the above codes is used, the IRS system will still generate an error notification to indicate the entry is invalid. The error notification will provide 120 days to correct the issues. If the TIN is not provided within the 120-days period, the IRS will evaluate the data received (including whether the reporting Model 1 FFI complies with the conditions set forth in Notice 2013-11) and whether there is significant noncompliance based on the facts and circumstances.

If a Model 1 FFI is deemed to be significantly noncompliant with the IGA by the IRS and fails to comply within 18 months, the FFI would be treated as a nonparticipating FFI and subject to 30% withholding tax under FATCA on US-source "withholdable payments". The IRS has continued to insist that FFIs obtain US TINs for all accounts to be reported, including pre-existing accounts.

While the new codes are already usable from the IRS point of view, they have not yet been confirmed by the Luxembourg Tax Authority.

Temporary relief for Model 1 FFIs

According to Notice 2023-11, the IRS will not treat Model 1 FFIs that follow the procedures described in the below section as significantly noncompliant solely because they failed to report a required US TIN for a pre-existing account, provided the Model 1 country also takes certain additional steps. The relief applies for calendar years 2022 through 2024.

What does it mean for Luxembourg FIs?

For each US reportable account missing a US TIN (including new accounts), Luxembourg FIs must take the following steps to be eligible for relief under the Notice 2023-11:

• Obtain and report the date of birth of each account holder that is an individual, as well as each controlling person, who is reported without a US TIN
• Annually request from relevant account holders and controlling persons, beginning in calendar year 2023, any required missing US TIN for both new and pre-existing accounts
• Annually search, beginning in calendar year 2023, electronically searchable data maintained by the reporting FFI for any missing required US TINs
• Report an accurate TIN Code for each applicable account
• Luxembourg FIs requesting missing TINs may use whatever method of communication they deem most likely to reach the account holder. The request should include either:
• The web address of the State Department's Joint FATCA FAQs
• A copy of those FAQs and either:
  • o A copy of the relief procedures provided by the IRS for certain former citizens
  • o The web address for those procedures

Luxembourg FIs will be required to update their policies and procedures to adopt the new requirements. The updated policies and procedures must be retained until the end of calendar year 2028 to document that the FFI complied with the new requirements.

Requirements for Model 1 Jurisdictions, including Luxembourg

It should also be noted that Model 1 FFIs are eligible for relief for a calendar year only if their country makes "good faith efforts" within nine months after the end of the relevant year to:

• Encourage US citizens in the jurisdiction to provide their US TINs to FFIs when requested
• Take measures to enforce compliance by Model 1 FFIs that the U.S. Competent Authority has identified as "potentially noncompliant"
• Encourage Model 1 FFIs not to discriminate against US citizens who provide US TINs
• Take steps to conclude Competent Authority Arrangements with the US Competent Authority, to implement an IGA, amend an Annex II to an IGA, or exchange country-by-country information when notified by the US Competent Authority
   

Notice 2023-11 does not explain what "encourage" means.

To provide Luxembourg FIs with a transition period, the notice deems Luxembourg and other Model 1 jurisdictions to have satisfied these conditions for 2022.

As of today, no communication from the Luxembourg Tax Authority has been issued with regards to the temporary relief, and associated procedures.