This notice modifies Announcement 2000-48, 2000-1 C.B.1243, and Notice
2001-43, 2001-2 C.B. 72, by providing that, generally, a branch of a financial
institution may not act as a qualified intermediary (QI) after December 31,
2006, in a country that does not have approved know-your-customer (KYC) rules.
Treasury regulation §1.1441-1(e)(5) permits a QI, as defined therein,
to furnish a withholding certificate to a withholding agent on behalf of other
persons for purposes of claiming and verifying reduced rates of withholding
under section 1441 or 1442. To qualify as a QI, the intermediary must enter
into a withholding agreement with the IRS, pursuant to §1.1441-1(e)(5)(iii),
the terms of which are contained in Rev. Proc. 2000-12, 2000-1 C.B. 387 (QI
Agreement). Rev. Proc. 2000-12 states that the IRS will not enter into a
QI agreement that provides for the use of documentary evidence obtained under
a country’s KYC rules unless it has received certain information that
allows it to determine whether those KYC rules are acceptable. Once the IRS
determines that a country’s KYC rules are acceptable, it lists such
country as an approved jurisdiction on the IRS website. KYC rules relate
to the capacity of a financial institution to determine whether their customers
are U.S. persons and, if their customers are non-U.S. persons claiming the
benefits of an income tax treaty, whether those customers are residents of
the applicable treaty country. See Notice 2001-4, 2001-1 C.B. 267.
Announcement 2000-48 limits eligibility for QI status to financial entities
organized in jurisdictions with approved KYC rules. However, Announcement
2000-48 (as modified by Notice 2001-43) permits a branch of a financial institution
(but not a separate juridical entity affiliated with the financial institution)
to act as a QI in a jurisdiction that does not have KYC rules, has unacceptable
KYC rules, or has KYC rules awaiting IRS approval, if the branch is part of
an entity organized in a country that does have acceptable KYC rules and the
entity agrees to apply its home country KYC rules to the branch.
When the QI system was implemented, only a small number of jurisdictions
had KYC rules that had been reviewed and approved by the IRS. In an effort
to implement the QI system as quickly and broadly as possible, branches of
financial entities were allowed to participate in the QI system under the
standards of Announcement 2000-48 and Notice 2001-43.
Now that Treasury and the IRS have reviewed the KYC rules for all of
the countries that submitted their KYC rules for review, and have approved
the KYC rules of 57 countries, Treasury and the IRS believe that it is no
longer prudent to permit branches of financial entities to operate as QIs
in countries that do not have approved KYC rules. KYC rules are most effective
when applied to the countries for which they were drafted. Further, because
the QI system is largely self-regulated, it is appropriate to limit participation
in the system to circumstances in which Treasury and the IRS have the greatest
confidence that such self-regulation will be effective. A country’s
continuing lack of an acceptable set of KYC rules raises concerns about the
effectiveness of self-regulation in that country.
SECTION 3. BRANCHES LOCATED OUTSIDE OF APPROVED KYC COUNTRIES
Branches of financial institutions will not be permitted to operate
as QIs after December 31, 2006, if they are located outside of countries listed
as having approved KYC rules on the IRS website at www.irs.ustreas.gov.
However, branches of a financial institution that are operating as QIs under
Announcement 2000-48 (as modified by Notice 2001-43) on April 3, 2006, may
continue to operate as QIs through December 31, 2007, provided that (1) the
financial institution mails a written request for an extension, on or before
June 30, 2006, to: KYC Coordinator, Internal Revenue Service, 290 Broadway,
12th Floor, New York, New York 10007; (2) the request
identifies the jurisdictions in which such branches are located and briefly
describes what steps those jurisdictions have taken to implement KYC rules;
and (3) the request is approved, in writing, by the KYC Coordinator.
Branches of financial institutions that operate in non-KYC approved
jurisdictions will be required to act as non-qualified intermediaries after
December 31, 2006, or after December 31, 2007, as applicable.
SECTION 4. EFFECT ON OTHER DOCUMENTS
This notice modifies Announcement 2000-48 and Notice 2001-43.
SECTION 5. CONTACT INFORMATION
The principle authors of this notice are Jason Kleinman and Ethan Atticks
of the Office of the Associate Chief Counsel (International). For further
information regarding this notice, contact Jason Kleinman or Ethan Atticks
at (202) 622-3840 (not a toll-free call).
You can either: Search all IRS Bulletin Documents issued since January 1996, or Search the entire site. For a more focused search, put your search word(s) in quotes.