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Foreign financial institutions have more time to renew their FATCA agreements

FATCA—FAQs General, Registration Update, Q10 – Q12 (Aug. 1, 2017).

In an update to recently issued frequently asked questions (FAQs) on registering foreign financial institutions (FFIs) under the Foreign Account Tax Compliance Act (FATCA), IRS has given entities that missed the July 31, 2017 deadline to renew their FFI agreements, and that have otherwise complied with the terms of their agreements, until Oct. 24, 2017 to renew them and continue to be treated as participating FFIs.

Background. The Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147) added Chapter 4 to the Code (Code Sec. 1471 through Code Sec. 1474, FATCA). In general, Chapter 4 requires withholding agents to withhold and deduct 30% from certain payments made to a foreign financial institution (FFI), unless the FFI has entered into an “FFI agreement” with the U.S. to, among other things, report certain information regarding U.S. accounts. Chapter 4 also imposes withholding, documentation, and reporting requirements on withholding agents for certain payments made to certain non-financial foreign entities (NFFEs).

Code Sec. 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30% on any withholdable payment made to a FFI, unless the FFI agrees to and complies with the terms of an FFI agreement to satisfy the obligations specified in Code Sec. 1471(b) (a participating FFI), is deemed to meet those requirements (a deemed-compliant FFI), or is treated as an exempt beneficial owner under Reg. § 1.1471-6. Code Sec. 1472(a) requires a withholding agent to deduct and withhold a tax equal to 30% on any withholdable payment made to a non-financial foreign entity (NFFE), other than an excepted NFFE, unless that entity provides information regarding its substantial U.S. owners or certifies that it does not have any such owners.

The FATCA Online Registration System is a web-based system that allows users to register (on behalf of themselves and their branches) and in most cases, obtain a global intermediary identification number (GIIN), online. A GIIN is used by an FFI, etc. to establish its chapter 4 status for withholding purposes and identify the institution for reporting purposes. When a user completes its FATCA registration, it generally is included on the FFI list. Published monthly, the FFI List may be used by financial institutions and other withholding agents to among other things, determine: (a) whether another financial institution to which a payment is to be made is a participating FFI, and (b) if the payment is subject to U.S. tax withholding.

IRS provides guidance in the form of FATCA FAQs on its webpage. The “FAQs General” section provides FAQs that contain information for financial institutions, withholding agents, and intermediaries on a variety of topics including compliance, reporting, registration and qualified intermediary/withholding partnership/withholding trust issues.

Previous FFI renewal guidance. In FATCA FAQ 10 (Registration Update), IRS explained that an entity with an FFI agreement entered into before Jan. 1, 2017, that was not renewed by the July 31, 2017 deadline, would be considered a nonparticipating FFI as of Jan. 1, 2017, and would be removed from the FFI list. (FATCA—FAQs General, Registration Update, Q10) See Weekly Alert ¶  20  7/13/2017.

Renewal extension. IRS has added a new FAQ that provides for an extension of the renewal date. An entity that must renew the FFI agreement, but that missed the July 31, 2017 renewal deadline and that has otherwise complied with the terms of the FFI agreement, now has until Oct. 24, 2017 to renew the FFI agreement and continue to be treated as a participating FFI.

If an entity that is required to renew the FFI agreement does not renew it by Oct. 24, 2017, its registration status will be changed to “incomplete,” its GIIN will no longer appear on the monthly FFI List beginning in November, and it will be considered a nonparticipating FFI as of Jan. 1, 2017, as provided in section 3.02 of Rev Proc 2017-16. (FATCA—FAQs General, Registration Update, Q12)

RIA observation: IRS subsequently revised FATCA FAQ 10 (Registration Update) on Aug. 4., 2017 to clarify that it had been superseded by FAQ 12.

References: For reporting under FATCA, see FTC 2d/FIN ¶  O-13,230  et seq.; United States Tax Reporter ¶  14,714  et seq.

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