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IRS issues updated FATCA financial institution registration information

December 16, 2013

IRS has issued updated information regarding the requirement that foreign financial institutions register with IRS in order to avoid withholding on certain payments to those institutions.

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 a foreign financial institution (FFI) unless the FFI 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. 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).

In the preamble to the final regs (see ), IRS announced that it would create a new FATCA registration website which would serve as the primary way for FFIs to interact with IRS to complete the required registration, agreements, and certifications.

In IR 2013-69 (see Weekly Alert ¶  3  08/22/2013), IRS announced that its online FATCA registration system was open for business, effective Aug. 19, 2013. IRS encouraged financial institutions (FIs) to become familiar with the system, create their online accounts, and begin submitting their information. It also said that, starting in January, 2014, financial institutions will be expected to finalize and submit their registration information and, upon finalization and approval in 2014, registering financial institutions will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN).

In Notice 2013-69, IRS issued a draft FFI agreement. (See Weekly Alert ¶  38  10/31/2013.)

An FFI agreement generally includes a qualified intermediary (QI) agreement, withholding foreign partnership (WP) agreement, or withholding foreign trust (WT) agreement that is entered into by an FFI and that has an effective date or renewal date on or after Dec. 31, 2013. (Reg. § 1.1471-1(b)(43)) QIs, WPs and WTs are parties that have entered into agreements to withhold tax under Chapter 3 of the Code, i.e., the portion of the Code under which tax is withheld on nonresident aliens and foreign corporations. (Reg. § 1.1471-1(b)(101), Reg. § 1.1471-1(b)(140) and Reg. § 1.1471-1(b)(142))

To ease the burdens of FATCA implementation and compliance, the U.S. issued two model intergovernmental agreements (IGAs), the “Model 1 IGA” and “Model 2 IGA,” to be implemented between the U.S. and other countries (“FATCA partners”). The IGAs represent an alternate means to implement FATCA in a way that is designed to increase reporting compliance by FFIs while addressing difficulties with implementation under FATCA partner local law.

IRS’s updated guidance. IRS has issued the following updates:

 

… Institution’s use of the registration website. All information entered at the registration website since Aug. 19, 2013, has been automatically saved in the registration system and associated with the FI’s FATCA account. With the exception of Dec. 21 and Dec. 31, 2013, when the registration website will undergo end-of-year processing, FIs will continue to have access to the registration website to create accounts or access existing accounts to modify or add registration information. Any information FIs entered in the registration system before the formal opening of the IRS FATCA registration website at the beginning of January 2014, even if submitted as final, is not regarded as a final submission. Thus, on or after Jan. 1, 2014, every registering FI must revisit its account, make edits to its information if necessary, sign its FFI agreement if registering as a participating FFI, and submit its registration information as final.

 

Any FI submitting its registration information on or after Jan. 1, 2014 may subsequently choose to revoke its status by revisiting its account and deleting its registration (if its GIIN has not yet been issued) or cancelling its registration (if its GIIN has already been issued).

 

… FFI, etc. agreements. IRS anticipates that the final FFI agreement will be published before Jan. 1, 2014. Final QI, WP, and WT agreements will be published in early 2014. Any FI seeking to renew its status as a QI, WP, or WT should do so during the registration process (i.e., by answering Questions 6, 9c, 13, 14, and 15). Any QI, WP, or WT that does so before the finalization of the QI, WP, and WT agreements will be treated as having accepted the revised terms of the applicable agreement, effective on June 30, 2014, for QIs, WPs, and WTs that receive a GIIN before July 1, 2014. A QI, WP, or WT may terminate its status at any time by delivery of a notice of termination in accordance with the terms of the applicable agreement.
… GIINs. IRS will periodically electronically post a list of FFIs whose registration was finalized. Verification of a GIIN is not required for payments made before Jan. 1, 2015, with respect to any payee that is a reporting Model 1 FI. Thus, while reporting Model 1 FIs will be able to register and obtain GIINs on or after Jan. 1, 2014, they will not need to register or obtain GIINs until on or about Dec. 22, 2014, to ensure inclusion on the IRS FFI list by Jan. 1, 2015.