Newly updated FATCA FAQs focus on foreign financial institution’s responsible officer
Newly updated FATCA FAQs focus on foreign financial institution’s responsible officer
IRS has issued new frequently asked questions (FAQs) on the Foreign Account Tax Compliance Act (FATCA). The FAQs explain the various requirements for a responsible officer and the options available for a foreign financial institution (FFI) in selecting one or several individuals or their delegates to fulfill these roles. The guidance also clarifies certain issues concerning qualified intermediaries, withholding foreign partnerships and withholding foreign trusts (QIs/WFPs/WFTs).
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 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 (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).
An FFI agreement generally includes a qualified intermediary (QI) agreement, withholding foreign partnership (WFP) agreement, or withholding foreign trust (WFT) 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, WFPs and WFTs 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))
The FATCA regs provide that a “responsible officer” means, with respect to a participating FFI (i.e., an FFI that has agreed to comply with the requirements of an FFI agreement), an officer of any participating FFI or reporting Model 1 FFI in the participating FFI’s expanded affiliated group, if that officer has sufficient authority to fulfill the duties of a responsible officer, which include the requirement to periodically certify to IRS regarding the FFI’s compliance with its FFI agreement. (Reg. § 1.1471-1(b)(116))
To ease the burdens of FATCA implementation and compliance, the U.S. issued two model intergovernmental agreements (IGAs), which represent alternate ways 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.
Last year, IRS issued an announcement (Ann. 2014-1, 2014-1 IRB 393; see Weekly Alert ¶ 35 12/19/2013) and two sets of FAQs (see Weekly Alert ¶ 48 09/26/2013) on the FATCA registration system. Earlier this month, IRS delayed the FFI registration deadline and also provided relief for FFIs in jurisdictions that do not yet have an IGA in effect but have reached agreements in substance with the U.S. on its terms. (Ann. 2014-17, 2014-17 IRB; see Weekly Alert ¶ 20 04/10/2014)
IRS’s updated guidance. The FATCA FAQs cover a number of subject-matter categories: QIs/WFPs/WFTs; IGA registration; expanded affiliated groups; sponsoring/sponsored entities; responsible officers and points of contact (POC); Financial Institutions (FIs); exempt beneficial owners; NFFEs; and registration update. The new FAQs primarily deal with the selection and qualification for responsible officers, but also clarify some issues on QIs/WFPs/WFTs.
Responsible officer. IRS states that there is no requirement that the same person be the responsible officer for all lines on Form 8957 (Foreign Account Tax Compliance Act (FATCA) Registration) or the online registration (FATCA Registration). However, it’s possible that the same person will have the required capacity to serve as the responsible officer for all FATCA registration purposes. The term “responsible officer” is used in several places in the FATCA Registration process. In determining an appropriate responsible officer for each circumstance, the FI or direct reporting NFFE should review the capacity requirements and select an individual who meets those requirements. IRS notes that the responsible officer used for registration purposes may differ from the certifying responsible officer of an FFI referenced in Reg. § 1.1471-1(b)(116). Below is a description of the required responsible officer capacity per line:
- …Language from the Form 8957 Instructions and the FATCA Online Registration User Guide specifies that the responsible officer for Question 10 purposes is a person authorized under applicable local law to establish the statuses of the entity’s home office and
- responsible officer identified in Part 1, Question 11b must be an individual who is authorized under local law to consent on behalf of the FI or direct reporting NFFE (authorizing individual) to the disclosure of FATCA-related tax information to third parties. The authorizing individual can give IRS written authorization to release the entity’s FATCA-related tax information to a POC. This authorization specifically includes authorization for the POC to complete the FATCA Registration (except for Part 4), to take other FATCA-related actions, and to obtain access to the FI’s (or direct reporting NFFE’s) tax information.
- …The authority required for an individual to be a responsible officer for purposes of Part 4 is substantially similar to that required under Reg. § 1.1471-1(b)(116). The responsible officer designated in Part 4 must be an individual with authority under local law to submit the information provided on behalf of the FI or direct reporting NFFE. In the case of FIs or FI branches not governed by a Model 1 IGA, this individual must also have authority under local law to certify that the FI meets the requirements applicable to the FI status or statuses identified on the registration form. A responsible officer (as defined for purposes of Part 4) can delegate authorization to complete Part 4 by signing a Form 2848 (Power of Attorney Form and Declaration of Representative) or other similar form or document (including an applicable form or document under local law giving the agent the authorization to provide the information required for the FATCA Registration). (FAQ 13)
Delegation of responsible officer duties. While the responsible officers for purposes of Question 10, Question 11b, and Part 4 of the FATCA Registration may be different individuals, IRS says that in practice they will generally be the same individual (or his delegate). The regulatory responsible officer is responsible for establishing and overseeing the FFI’s compliance program. He may, but does not necessarily have to, be the registration responsible officer for purposes of (1) ascertaining and completing the chapter 4 statuses in the registration process; (2) receiving the Global Intermediary Identification Number (GIIN) and otherwise interacting with IRS in the registration process; and (3) making the Part 4 undertakings. Alternatively, the regulatory responsible officer, or the FFI (through another individual with sufficient authority), may delegate each of these registration roles to one or more persons pursuant to a delegation of authority (such as a Power of Attorney) that confers the particular registration responsibility or responsibilities to such delegate(s). (FAQ 13)
Authority to establish statuses of FI’s home office. The Instructions for Form 8957 state that for purposes of Part 1, Question 10, a responsible officer means the person authorized under applicable local law to establish the statuses of the FI’s home office and branches as indicated on the registration form. IRS states that a responsible officer must have the authority to act on behalf of the FI to represent the FATCA status(es) of the FI to IRS as part of the registration process. The responsible officer must also have the authority under local law to designate additional POCs. (FAQ 14)
Outside organization. IRS indicates that as part of the registration process, an FI or direct reporting NFFE may appoint up to five POCs who are authorized to take certain FATCA-related actions on behalf of the entity, including the ability to complete all parts of the FATCA Registration (except for Part 4), to take other appropriate or helpful FATCA-related actions, and to obtain access to the entity’s FATCA-related tax information. (FAQ 15)
QIs/WFPs/WFTs status. IRS explains that a taxpayer that is not currently a QI/WFP/WFT can’t use the Large Business and International (LB&I) registration portal to register for FATCA and become a new QI/WFP/WFT. That’s because QI/WFP/WFT status can only be obtained by completing and submitting a Form 14345 (QI Intermediary Application) and Form SS-4 (Application for Employer Identification Number) directly to the QI Program. IRS advises that interested QIs/WFPs/WFTs should submit the required paperwork to the QI program and separately use the FATCA registration portal to obtain a GIIN for FATCA purposes. FFIs cannot become a new QI/WFP/WFT through the FATCA portal. (FAQ 3) An FI isn’t required to become a QI/WFP/WFT in order to register under FATCA. (FAQ 4)
References: For withholdable payments to FFIs and other foreign entities, see Federal Tax Coordinator 2d ¶ O-13070 et seq.; United States Tax Reporter ¶ 14,714 et seq.