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FATCA FAQs discuss registration and various changes to financial institutions

IRS has revised its frequently asked questions (FAQs) on the Foreign Account Tax Compliance Act (FATCA) to provide additional guidance on the effect of changes to foreign financial institutions (FFIs) and their expanded affiliated groups (EAGs) on their FATCA registration. The guidance covers such situations as where a FFI is dissolved (either before or after it’s registration is complete) or the parent of an EAG sells its interest in a wholly-owned FFI.

Background. On Mar. 18, 2010, the Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147) added Chapter 4 (Code Sec. 1471 through Code Sec. 1474 , FATCA) to the Code. Chapter 4 requires withholding agents to withhold 30% of certain payments to an FFI unless if has entered into an agreement (FFI Agreement) with IRS to, among other things, report certain information with respect to U.S. accounts. (The withholding rules are essentially a mechanism to enforce new reporting requirements.) Chapter 4 also imposes withholding, documentation, and reporting requirements on withholding agents, with respect to certain payments made to certain non-financial foreign entities (NFFEs). The statutory provisions are generally effective for payments made after Dec. 31, 2012, but their implementation has been delayed and phased in over several years.

IRS issued final FATCA regs on Jan. 17, 2013 that, among other things, provided for a phased implementation of the FATCA requirements over the period beginning on Jan. 1, 2014 and continuing through 2017 (see Weekly Alert ¶  12  01/24/2013, Weekly Alert ¶  11  01/24/2013 , Weekly Alert ¶  17  01/24/2013, Weekly Alert ¶  42  01/24/2013 , Weekly Alert ¶  19  01/24/2013 , and Weekly Alert ¶  13  01/31/2013). Subsequently, in Notice 2013-43, 2013-31 IRB 113, Treasury and IRS provided revised timelines for implementing various FATCA requirements with the goal of a more orderly implementation of FATCA (see Weekly Alert ¶  6  07/18/2013).

To ease the burdens of FATCA implementation and compliance, the U.S. issued two model intergovernmental agreements (Model 1 or Model 2 IGA) that are designed to increase reporting compliance by FFIs while addressing difficulties with implementation under FATCA partner’s local law.

To the extent that it receives withholdable payments and isn’t subject to an exemption from the registration requirement (such as for a certified deemed-compliant FFI), an FFI that is in a non-IGA country and that doesn’t register with IRS will be subject to 30% withholding under the Chapter 4 rules. In order for withholding not to apply, a withholding agent must obtain an FFI’s Global Intermediary Identification Number (GIIN) for payments made after June 30, 2014.

IRS’s updated guidance. IRS has revised FAQs that it has issued on FATCA to provide the following guidance:

…An FFI in a Model 1 IGA jurisdiction doesn’t need to register before July 1, 2014, if the FFI is part of an EAG. While the chapter 4 regs generally provide that in order for withholding not to apply, a withholding agent must obtain the GIIN of a participating FFI or a deemed-compliant FFI for payments made after June 30, 2014, under a special rule in these regs, a withholding agent doesn’t need to obtain a reporting Model 1 FFI’s GIIN for payments made before Jan. 1, 2015. A reporting Model 1 FFI will have additional time beyond July 1, 2014, to register and obtain a GIIN in order to ensure that it is included on the IRS FFI list before Jan. 1, 2015. In addition, a reporting Model 1 FFI isn’t required to register before Dec. 31, 2014, in order for its EAG to meet the reg requirements.

…Where the common parent of an EAG sells its interest in a wholly-owned FFI that is registered as a Member Financial Institution (FI) so that the Member FI is no longer part of the EAG, it must register again to obtain a new FATCA ID and a new GIIN. The Member FI must also cancel or delete its original registration.

…A FATCA registrant can’t change its FI Type (which is selected at the beginning of the FATCA registration process) without re-registering. To re-register, the registrant must also cancel or delete its original registration.

…Where a registrant changes its name but not its FI Type, it must register again as a Lead FI and obtain a new FATCA ID and a new GIIN. After the FFI re-registers, its Member FIs will be able to complete their FATCA registrations. To re-register, the registrant must also cancel or delete its original registration.

…An FFI that is registered as a Lead FI of an EAG can change its FATCA registration to become a Single FI by re-registering as a Single FI and obtaining a new FATCA ID and a new GIIN. To re-register, the registrant must also cancel or delete its original registration. Before a Lead FI can cancel its registration, it must first ensure that all of its Member FIs have cancelled their FATCA registrations, and those Member FIs should register to continue their applicable FATCA statuses.

…If a registrant is dissolved before its FATCA registration is approved, then it should delete its registration. If it dissolves after its FATCA registration is approved, then it should cancel its registration.

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