Qualified Intermediary – IRS view
So basically, through the “know your client” rules, the IRS provides the few perks listed above – pooled rate and reduced withholding rate, and the QI must receive valid W8’s or W9’s in order to confirm to the IRS that there are no Americans pretending to be foreign and avoid paying taxes. For performing this duty for the IRS, you must also have performed 2 external audits and a yearly internal audit of the QI program.
If found in violation of this agreemnt, there is a fine of up to $100,000 per offense.
Make sure to keep all records in order – provide the IRS with one main contact for the QI program and have your yearly internal audits performed. Charging extra to clients for being their QI makes sense in order to cover the costs of the external audits.
More to come…
It’ s been hard getting to post here because I want to add technical content, but in my tax group, we’ve been dealing with smaller, less technical issues, such as discrepancies from the CRA, a change in T5 reporting resulting in FN numbers being given to businesses which transfer agents will need in order to report on their behalf, more QI stuff and changes to the online W-8BEN form.
All fun, just different.
I am working on a presentation outlining the responsibilities of a Qualified Intermediary in Canada.
In the process of managing the processing of 2 million tax slips for my employer, the world’s largest transfer agent, the following question came across my desk:
A husband and wife divorced during the year and the husband did not make his child support payments as required by court order. As a result, family court here in Canada passed a judgement stating that any stock he held be removed from his name and either cashed in so those funds could be given to his wife, or the stock be transferred to his wife so that she may cash them in as she needs them.
So here is the question:
Who gets the T5008? Him or her?
Note: Traders or dealers in securities have to file a T5008 information return to report purchases of securities as principal for their own account, and sales of securities they make as an agent or nominee, for any vendor.
Issuers of securities and their agents or nominees use this (T5008) information return to report redemptions, acquisitions, or cancellations of securities.
Might this be considered a deemed disposition?
You do not have to report deemed dispositions on a T5008 slip, in certain circumstances, the Income Tax Act considers that a property has been disposed of, even though no real compensation in the form of money or other consideration has been received.
Some examples of when a deemed disposition may occur are:
- transfers of property to a trust;
- gifts of property (that is, the name of the beneficial owner of the property is changed);
- the owner dies; or
- the owner ceases to be a resident of Canada.
In this guide, “sale” generally refers to a transaction where the ownership of property is transferred from one person or entity to another for a sum of money or other consideration. In the case of a deemed disposition, ownership of the property is not transferred for money or other consideration. In addition, a deemed disposition is not a purchase, redemption or cancellation of a security. Consequently, a deemed disposition is not considered for the purposes of Income Tax Regulation 230 and a T5008 slip is not required.
Answer to follow…
a: To excite or stupefy by taxation to the point where physical and mental control is markedly diminished
b: to excite or elate to the point of enthusiasm or frenzy… about taxation.
Passionate about Taxation. Passionate about helping you!
Since this case broke in February, governments around the world have been investigating the possibility that their citizens have offshore accounts set up mainly to avoid paying taxes. Germany, which as of late 2008, is leading the international crackdown on tax evaders, has reportedly collected up to 250 million euros from more than 200 tax evaders who have turned themselves in, and from 330 citizens who wrongly believed they were on the list of accounts stolen from LGT Group (the largest family-owned private wealth and asset manager in Europe, owned by the Prince of Liechtenstein and thought by many to be the factor behind the US crackdown on tax evasion through their FATCA legislation.
When prompted for a comment regarding Canadians, the CRA refuses to comment.
The CRA would not even throw the press a bone by offering how many Canadians are involved, if the CRA is investigating, and if the CRA would accept voluntary disclosure from those involved in order to help them come clean without the fear of penalties and / or prosecution.
One can wonder if the silence is a result of a crack team of CRA staff who have known about and are working on resolving the Canadians attached to this list, or whether this whole situation came out of left field and the CRA is scrambling to get more information before they can respond publicly.
For those of you who are unaware, this came to light when in February when a former LGT computer technician name Heinrich Kieber stole and sold account information of about 1,400 wealthy clients to the German foreign intelligence service, the Bundesnachrichtendienst. Germany then shared the data with other countries which triggered an international crackdown on tax evasion.
Kieber, for his part, has been given a new identity and placed in witness protection in an undisclosed country. During a hearing in the US, surrounding US citizens’ use of banks in Liechtenstein and Switzerland, Kieber answered questions and outlined the extensive efforts and schemes enlisted by the bank to ensure secrecy.
Swiss banks will now refuse to hold offshore money from US citizens and the US plans on suing the bank. This is just the beginning!
Should Canada follow the lead of other countries investigating their citizens who have accounts in Liechtenstein? Those countries have made public the number of people who have stepped forward and declared their offshore income. Is there is reason why Canada remains quiet?
Only time will tell.