SIFMA Asks Treasury to Delay Withholding under FATCA

SIFMA has asked the U.S. Treasury Department (the "Treasury") to defer withholding under FATCA from its scheduled January 1, 2014 effective date until January 2015, because "there is a growing and widespread realization" that the financial industry will not be ready for FATCA withholding by January 2014, resulting in a "substantial amount of over-withholding" that will likely have "severe adverse consequences" for the financial markets. SIFMA noted that key FATCA forms and instructions, including revised Form W-8s, have not been issued in final form, making it nearly impossible for financial institutions to program systems to be ready for withholding if the January 1, 2014 effective date is retained. Further complicating the matter is the slow pace of negotiating and finalizing intergovernmental agreements around the world. Financial institutions have been caught in limbo, waiting to see if and when their home jurisdictions will adopt IGAs, what the substantive terms of such IGAs will be and the details of their implementation. According to SIFMA, financial institutions in countries where Model 1 IGAs are in negotiation will be reluctant to enter into FFI agreements with the IRS and, in some countries, such action would be prohibited by law.

Since SIFMA estimates that financial institutions will need up to 15 months from the issuance of all guidance to design, build and implement systems to address FATCA, SIFMA urged Treasury to promptly announce a deferral of withholding until January 1, 2015. Alternatively, if the Treasury is unwilling to generally push out the effective date, SIFMA asked (i) that withholding only be required to the extent that financial institutions have actual knowledge of a payee's FATCA status and (ii) that the Treasury publish by October 1, 2013, a list of all countries that may be treated as Model 1 countries for 2014, even if the IGA has not been finalized.

SIFMA also asked for specific changes to due diligence procedures in the regulations that clarify the rule for material modifications of grandfathered debt instruments, ensure that foreign branches of U.S. banks are not subject to two parallel reporting regimes, and add a minimum threshold for professionally managed investment entities.

See: SIFMA Comment Letter.Related News: "SIFMA Comments on the Final Provisions of the Foreign Account Tax Compliance Act" (June 24, 2013).