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IRS answers question on FATCA new account self-certification

IRS has added a new frequently asked question (FAQ) on general compliance issues associated with the Foreign Account Tax Compliance Act (FATCA); new FAQ 10 addresses a foreign financial institution’s requirement to obtain a self-certification before it may open new individual accounts under FATCA.

Background. In 2010, Congress passed the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147 (the HIRE Act), which added chapter 4 of Subtitle A to the Code. Chapter 4, commonly known as FATCA, essentially represents an international tax reporting regime, the object of which is to thwart efforts by U.S. persons to hide unreported income and assets offshore. (See Code Sec. 1471 through Code Sec. 1474.)

Chapter 4 generally requires withholding agents to withhold tax on certain payments to a foreign financial institution (FFI), unless it has entered into a FFI agreement with the U.S. to, among other things, report certain information with respect to U.S. accounts. In addition, it also imposes withholding, documentation, and reporting requirements on withholding agents, with respect to certain payments made to certain non-financial foreign entities.

In cases in which foreign law would prevent an FFI from complying with the terms of an FFI agreement, IRS has collaborated with other governments to develop two alternative model intergovernmental agreements (IGAs) that facilitate FATCA implementation. Reporting financial institutions under an applicable Model 1 IGA (reporting Model 1 FFIs) would satisfy their Chapter 4 requirements by reporting specified information about U.S. accounts to their government, followed by the automatic exchange of that information on a government-to-government basis with the U.S. Under a Model 2 IGA, reporting Model 2 FFIs would report specified information about U.S. accounts directly to IRS in a manner consistent with the final regs (as modified by the applicable Model 2 IGA), supplemented by a government-to-government exchange of information on request.

Annex I for the Model 1 IGA and for the Model 2 IGA is quite similar. In both cases, Annex I provides due diligence procedures for FATCA Partner FFIs to use when identifying preexisting and new accounts.

Section III of Annex I applies to new individual accounts and provides the procedures for identifying U.S. reportable accounts among accounts opened by individuals on or after Jul. 1, 2014. As with preexisting accounts, accounts below certain value thresholds do not have to be reviewed. However, if the account is above the threshold, the FFI must obtain a self-certification from the account holder regarding his or her U.S. person status and check such self-certification against the other documentation obtained in opening the account. If the self-certification shows that the account holder is a U.S. person, the account must be treated as a U.S. reportable account and the relevant information collected.

A U.S. Reportable Account is an account owned by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. owners.

New FAQ 10. New FAQ 10 addresses the following question: if a Reporting Model 1 FFI or a Reporting Model 2 FFI that is applying the due diligence procedures in section III, paragraph B, of Annex I of the IGA cannot obtain a self-certification upon the opening of a New Individual Account, can the FFI open the account and treat it as a U.S. Reportable Account?

FAQ 10 answers this question “no.” Pursuant to section III, paragraph B, of Annex I of the IGA, the FFI must obtain a self-certification at account opening. If the FFI cannot obtain a self-certification at account opening, it cannot open the account.

References: For withholdable payments to FFIs and other foreign entities, see FTC 2d/FIN ¶  O-13070  et seq.; United States Tax Reporter ¶  14,714  et seq.

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