FATCA, EAI, QI, QDD tax regulations
The Foreign Account Tax Compliance Act (FATCA) is an extraterritorial U.S. regulation that went into effect on July 1, 2014, aimed at combating tax evasion involving accounts of U.S. citizens or residents holding financial assets outside the United States.
The Automatic Exchange of Information (AEI) is an initiative of the Organization for Economic Cooperation and Development (OECD) to combat tax evasion.
Qualified Intermediary (QI) status allows clients to apply the reduced withholding tax rates to which they are eligible on their U.S. source income with reduced formalities.
The Qualified Derivatives Dealer (QDD) status reserved for QI institutions that have applied for it, avoids the cascading application of withholding taxes on payments equivalent to US source dividends.
Crédit Agricole CIB performs due diligence on documentation, withholding tax, reporting and compliance requirements.
The Foreign Account Tax Compliance Act (FATCA)
FATCA is a US regulation aiming to fight tax evasion by US citizens and US residents who hold financial assets outside of the United States. The Internal Revenue Service (IRS, US tax authorities) has set up a framework to collect on a yearly basis from non-U.S. financial institutions information relating to foreign incomes and assets held by U.S. taxpayers outside the United States.
This regulation requires financial institutions to put in place procedures to identify their U.S. clients. Otherwise, they will be subject to a 30% withholding tax for all financial flows from a US source or from the US that they receive on their behalf or on behalf of their customers.
The Automatic Exchange of Information (AEI)
Within the framework of the fight against tax evasion, the OECD developed in July 2014 a new standard of automatic exchange of information (AEOI) between jurisdictions, the “Common Reporting Standard” (CRS). More than a hundred countries, of which France, have already committed to exchange their information from 2017.
The standard obliges the financial institutions (banks, depositories, life insurance companies, etc.) implanted in signatory countries of the standard to identify tax resident account holders, and to transmit annually information (data concerning the account holder, accounts balances, income, profit from securities) to their tax authorities. This tax authority will then broadcast the data in the various concerned administrations.
The Qualified Intermediary (QI)
The Qualified Intermediary (QI) status is an optional status introduced by the US tax authorities (the IRS: Internal Revenue Service) in 2001. This status is granted to non-US financial entities, which have entered into a QI agreement with the US tax authorities.
Entities with the QI status are allowed to apply to their customers the reduced withholding tax rate they qualify for on their US-source income. In return, the QI entities have to fulfill regulatory obligations (documentation, withholding, reporting and compliance) towards the US tax authorities.
The Qualified Derivatives Dealer (QDD)
The Qualified Derivatives Dealer (QDD) status is an optional status delivered by the US tax authorities (the IRS: Internal Revenue Service) since 2017. This status is granted to entities which have already entered into a QI agreement with the IRS and which specifically elect and qualify for this status.
Entities with the QDD status acting as principal with respect to potential section 871(m) transactions avoid the cascading withholding taxes as they are exempt from US withholding tax on the US source dividend equivalent payments they receive in this capacity. In return, the QDD entities have to fulfill both QI regulatory obligations and the QDD related ones (documentation, withholding, QDD tax liability, reporting and compliance) towards the US tax authorities.