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IRS delays FATCA financial institution registration deadline & liberalizes IGA treatment

IRS has announced guidance to foreign financial institutions (FFIs) in jurisdictions that haven’t signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) provisions, but that have reached an agreement in substance with the U.S. on the terms of such an IGA.The guidance also provides that if a FFI’s registration is finalized by May 5, 2014, rather than Apr. 25, 2014 (as originally announced), an FFI’s Global Intermediary Identification Number (GIIN) will be included on the IRS FFI List for June 2. Further, the GIIN of a registering FFI will be included on the IRS FFI List for July 1 if the FFI’s registration is finalized by June 3, 2014.

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, the “Foreign Account Tax Compliance Act” or FATCA) to the Code.Chapter 4 requires withholding agents to withhold 30% of certain payments to a foreign financial institution (FFI) unless the FFI has entered into a “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.

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).Subsequently, in Notice 2013-43, 2013-31 IRB 113, Treasury and IRS provided revised timelines for implementing various FATCA requirements—namely, delaying FATCA withholding until July 1, 2014.Notice 2013-43 also provided additional guidance concerning the treatment of FFIs located in jurisdictions that have signed intergovernmental agreements (IGAs) for the implementation of FATCA, but have not yet brought those IGAs into force—clarifying that a jurisdiction is treated as having an IGA in effect if the jurisdiction is listed on the Treasury website as such.(See Weekly Alert ¶  6  07/18/2013 for more details.)IRS later issued Notice 2013-69, 2013-46 IRB 503, which provided additional guidance.(See Weekly Alert ¶  38  10/31/2013.)

Under the final FATCA regs, IRS is to publish a list, available on Treasury’s and IRS’s websites, that identifies all countries that are treated as having an IGA (i.e., either a Model 1 or Model 2 IGA) in effect.(Reg. § 1.1471-1(b)(78), Reg. § 1.1471-1(b)(79)) This list is to also include jurisdictions that have signed, but may not yet have brought into force, an IGA.(Notice 2013-43, 2013-31 IRB 113)

FFIs that register with IRS receive a notice of registration acceptance and are issued a GIIN.The final regs generally provide that in order for withholding not to apply, a withholding agent must obtain an FFI’s GIIN for payments made after June 30, 2014 and must confirm that the GIIN appears on the IRS FFI List.A special rule provides that a withholding agent doesn’t need to obtain a reporting Model 1 FFI’s GIIN for payments made before Jan. 1, 2015.(Reg. § 1.1471-3(d)(4)(iv)(A))

Notice 2013-43 and Ann. 2014-1, 2014-2 IRB 393, indicate that FFIs must register on the FATCA registration website by April 25, 2014 (GMT-5), to ensure they are included on the first IRS FFI List, which is expected to be electronically available on June 2, 2014 (GMT-5).

The issue.Stakeholders have expressed concerns that FFIs located in jurisdictions that are expected to sign an IGA, but have not yet signed the agreement, are unable to plan effectively and efficiently for the July 1 implementation of FATCA given the uncertainty as to when the relevant IGA may be signed and so treated as being in effect.More specifically, stakeholders have expressed concern that certain jurisdictions will not have signed an IGA by Apr. 25, 2014, and so FFIs in those jurisdictions will not be able to timely register consistent with their expected IGA status.

Expansion of IGAs treated as being in effect.Ann. 2014-17 provides that the jurisdictions listed on the Treasury and IRS websites as ones that are treated as having an IGA in effect will also include jurisdictions that before July 1, 2014 have reached agreements in substance with the U.S. on the terms of an IGA (and have consented to be included on the list)—even if those agreements haven’t yet been signed.The list will specify only whether the relevant IGA is a Model 1 or a Model 2 IGA (not the text of the agreements).Until the IGA is signed, the jurisdiction will be treated as having in effect the relevant model provisions.An FFI resident in, or organized under the laws of, such a jurisdiction can register on the FATCA registration website consistent with its treatment under the relevant model IGA and will be allowed to certify its status to a withholding agent consistent with that treatment.

IRS notes that Treasury generally has a policy of not deviating from the model text except in limited circumstances in Annex II.Any modifications made in the relevant IGA to the model Annex II categories of exempt beneficial owners, deemed compliant FFIs, and accounts excluded from the definition of financial accounts will accordingly not be applicable until the IGA is signed.

These jurisdictions will be treated as having an IGA in effect from the date that the jurisdiction provides its consent (or Apr. 2, 2014, the date of the public release of Ann. 2014-17, if later) until Dec. 31, 2014, the date by which the IGA must be signed in order for this status to continue without interruption.Jurisdictions that reach agreements in substance on or after July 1, 2014, will not be included in the list of jurisdictions that are treated as having an IGA in effect until the IGA is signed.

A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if Treasury determines that the jurisdiction isn’t taking the steps necessary to bring the IGA into force within a reasonable period of time.(A jurisdiction will also be removed from the list if the jurisdiction fails to sign the IGA by Dec. 31, 2014.)If a jurisdiction is removed from the list, FFIs that are resident in, or organized under the laws of, that jurisdiction, and branches that are located in that jurisdiction, will, from the first day of the month following the month of removal, no longer be entitled to the status that would be provided under the IGA, and will be required to update their status on the FATCA registration website accordingly.

New dates for registering on the IRS FFI List.In Ann. 2014-17, IRS stated that based on its experience with the registration system and GIIN generation process to date, it believed that it could ensure registering FFIs that their GIINs will be included on the June 2 IRS FFI List if their registrations are finalized by May 5, 2014 (GMT-5), rather than Apr. 25, 2014, as originally announced.Further, IRS believed that it could ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014 (GMT-5).

IRS noted that FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively.However, IRS couldn’t provide assurances that this would be the case.IRS said it would continue processing registrations in the order received.However, processing times may increase as the May 5 and June 3 dates approach.

FFIs resident in, or organized under the laws of, a jurisdiction that is treated as having an IGA in effect—which under Ann. 2014-17 includes jurisdictions listed on the Treasury and IRS websites as having reached agreements in substance on IGAs before July 1, 2014—should register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or a participating FFI (which would include all reporting Model 2 FFIs), as applicable.IRS emphasized that withholding agents were still not required to obtain the GIINs of FFIs that were treated as reporting Model 1 FFIs before Jan. 1, 2015.

IRS also reminded all withholding agents that in accordance with Reg. § 1.1471-3(e)(3) a withholding agent that receives a Form W-8 from a payee with a GIIN that doesn’t yet appear on the published IRS FFI List has 90 days to verify that the GIIN appears on the list before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect.In addition, a withholding agent that receives a Form W-8, Certificate of Foreign Status, from a payee indicating that the payee has applied for a GIIN, has 90 days to obtain the GIIN from the payee and verify it against the IRS FFI List before the withholding agent will be treated as having reason to know that the Chapter 4 status of the payee is unreliable or incorrect.

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