IRS Revises FFI Agreement

The IRS issued Revenue Procedure 2014-38 ("Revenue Procedure") to modify the model Foreign Financial Agreement ("FFI Agreement") which Foreign Financial Institutions ("FFIs") (other than those located in Model 1 Intergovernmental Agreement ("IGA") countries) must enter into with the IRS in order to be "participating FFIs." According to the IRS, most of the changes to the FFI Agreement were made to reflect the Temporary Regulations issued under FATCA and the Temporary Regulations that coordinate the FATCA regulations with the existing income tax withholding and reporting regulations. In addition, the revised FFI Agreement provides guidance to FFIs and branches of FFIs treated as "reporting Model 2 FFIs" under a Model 2 IGA.

Section 9.02(B) of the FFI Agreement is revised to allow a participating FFI that receives a withholdable payment that is allocable to an account holder of the FFI that is a passive non-financial foreign entity ("NFFE") with one or more substantial or controlling U.S. owner(s) to certify on a withholding statement provided to the withholding agent that the FFI is reporting the account holder as a U.S. account under the terms of the FFI agreement. This will relieve the withholding agent of its obligation to obtain and report information about a passive NFFE with substantial U.S. owners under section 1472. This amendment is intended to eliminate duplicative reporting of substantial U.S. owners (or controlling persons) of passive NFFEs required under section 1472. Section 9.02(B) is also revised to provide that a participating FFI may allocate a portion of a withholdable payment to a group of documented account holders (other than nonqualified intermediaries or flow-through entities) for whom withholding and reporting is not required under chapter 3, 4 or 61. For example, a participating FFI may allocate a payment of bank deposit interest to a pool of documented foreign account holders rather than providing specific information and a valid withholding certificate or other appropriate documentation for each such payee. According to the Revenue Procedure, the Treasury Department and the IRS intend to amend the regulations to incorporate these changes when the temporary chapter 4 regulations are finalized.

See: Revenue Procedure 2014-38.See also: Cabinet FATCA Materials (for Cabinet subscribers only). For more information, please contact Daniel Mulcahy and Mark Howe.