FATCA Deadlines Near; IRS Still Promising More Guidance (with YouTube Selection)
FATCA is scheduled to take effect on July 1 and IRS Commissioner John Koskinen reiterated earlier this week that there will be no further extension of the deadline. Generally, foreign banks and other foreign financial institutions ("FFIs"), including most foreign hedge funds, trusts, trustees and investment managers, must register with the IRS by April 25 to assure that they will receive a Global Intermediary Identification Number ("GIIN") by July 1 and be on the Treasury's initial list of FATCA-compliant foreign financial institutions that will be published on June 2. The GIIN will be used by such institutions to establish their FATCA status for withholding agents. Starting on July 1, payments of U.S. source dividends, interest and other similar U.S. source payments made to foreign financial institutions that have not registered and received a GIIN or otherwise established their FATCA-compliant status will be subject to a 30% withholding tax. Financial institutions in countries that have signed a Model 1 FATCA Intergovernmental Agreement ("IGA") with the United States, however, are not subject to such withholding and are not required to provide withholding agents with a GIIN until January 1, 2015. To date, the IRS has signed 24 FATCA IGAs, all but four of which are Model 1 versions. The Treasury announced that it has reached "agreements in substance" with another 23 countries. It is unclear how many of these will be signed before July 1 (or April 25).
In addition to the registration deadline, FFIs must begin to use new due diligence procedures for accounts opened on or after July 1 in order to identify accounts that are held directly or indirectly by U.S. persons. For example, upon the opening of any financial account for an individual on or after July 1, 2014, the FFI must obtain a "self-certification" (usually an IRS Form W-8BEN) from the account holder as part of the account opening documentation that establishes whether the Account Holder is a resident in the United States for tax purposes and to confirm the reasonableness of such self-certification based on information obtained by the FFI in connection with the opening of the account, including any documentation collected pursuant to AML/KYC Procedures. For new entity accounts opened on or after July 1, an FFI must determine whether the account holder is: (i) a Specified U.S. Person; (ii) a Model 1 FFI; (iii) a participating FFI, a deemed-compliant FFI or an exempt beneficial owner, as those terms are defined in the relevant FATCA Treasury Regulations; (iv) an Active Non-Financial Foreign Entity ("NFFE"); or (v) a Passive NFFE, generally by receiving and examining a U.S. Form W-8BEN-E ("Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)") and, if applicable, a GIIN. Accounts for this purpose include equity and debt interests in investment entities.
Despite the looming deadlines, the IRS and the Treasury still have not completed all of the guidance and forms that will be used to comply with FATCA. At a recent conference held by the Tax Executives Institute, IRS officials announced that, prior to July 1, they would issue a package of additional technical corrections to the proposed and temporary FATCA regulations that were published in February 2014. In addition, the IRS plans to publish a set of "frequently asked questions and answers" on the FATCA registration process, which will be posted on the IRS FATCA website. The IRS is also scrambling to complete Forms W-8BEN-E, W-8IMY and W-8EXP, which will be used by non-US. entities to establish their status with respect to FATCA. The Forms are likely to be published prior to instructions so that taxpayers can get the final forms as soon as possible, according to John Sweeney, Chief of Branch 8 of the IRS.
Although Commissioner Koskinen has stated that the FATCA deadline will not be extended, he did indicate that the IRS will provide some leeway in enforcing the provisions initially, so long as financial intermediaries are making "reasonable, good faith efforts to comply with the statute", but not for institutions that haven't undertaken any serious effort "in the hope that somehow or other [FATCA] will go away."
See: Cabinet FATCA Materials (for Cabinet subscribers only).For more information, please contact Daniel Mulcahy and Mark Howe.