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Updated FATCA FAQs clarify FFI agreement renewal requirements

IRS has revised its general frequently asked questions (FAQs) on the Foreign Account Tax Compliance Act (FATCA) to provide additional guidance on renewing foreign financial institution agreements.

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 with respect to U.S. accounts. 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).

Chapter 4 of the Code includes Code Sec. 1471-Code Sec. 1474. Code Sec. 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30% on any withholdable payment made to a foreign financial institution (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 these requirements under Code Sec. 1471(b) (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 such entity provides information regarding its substantial U.S. owners or certifies that it does not have any such owners.

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 FATCA regs (as modified by the applicable Model 2 IGA), supplemented by a government-to-government exchange of information on request.

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 will be 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 a number of FAQs to provide FATCA guidance 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.

New FAQs. In FAQs General section, in FAQ 8 (Registration Update), IRS advised that not all entities are required to enter into an FFI agreement in order to receive a GIIN. If an entity was required to enter into an FFI agreement and did so before Jan. 1, 2017, it must renew its FFI agreement by Jul. 31, 2017, in the FATCA FFI Registration System if it wants to remain on the FFI List.

IRS also provided a general overview of the types of entities that are and aren’t required to renew their FFI agreement.

FFI agreement renewal is required for:

…a participating FFI not covered by an IGA and a Model 2 FFI.

… reporting Model 1 FFI operating branches outside of Model 1 jurisdictions, on behalf of those branches (other than “related branches”—i.e., branches that are treated as nonparticipating FFIs under Article 4(5) of the Model 1 IGA.)

FFI agreement renewal isn’t required for:

…a reporting Model 1 FFI that is not operating branches outside of Model 1 jurisdictions.

…a registered deemed-compliant FFI, regardless of location (as described in Reg. § 1.1471-5(f)).

…a sponsoring entity (an entity seeking to perform the due diligence, withholding, and reporting obligations on behalf of one or more sponsored entity).

…a direct reporting NFFE (i.e., an NFFE that elects to report information about its direct or indirect substantial U.S. owners to IRS and meets certain requirements).

…a trustee of a trustee-documented trust (a certified deemed-compliant status for FFIs under the Model 1 and Model 2 IGAs).

In FAQ 9 (Registration Update), IRS advised that entities that are not required to renew don’t need to take any action with respect to their registration. They are not required to answer “No” when the “Renew FFI Agreement” link asks if they and/or their branches are required to renew the FFI agreement. They will remain in “Approved Status,” and they will remain on the FFI list. (IRS notes that entities that are located in a Model 1 jurisdiction that entered into an FFI agreement on behalf of certain branches, must renew the FFI agreement on behalf of those branches.)

In FAQ 10 (Registration Update), IRS explained what were the requirements for an entity that entered into the FFI agreement contained in Rev Proc 2014-38, 2014-29 IRB 131, before Jan. 1, 2017, but did not renew your FFI agreement by July 31, 2017. IRS stated that the FFI agreement contained in Rev Proc 2014-38 terminated on Dec. 31, 2016. Accordingly, if an entity did not renew its FFI agreement (contained in Rev Proc 2017-16, 2017-3 IRB 501) by July 31, 2017, it will be considered a nonparticipating FFI as of Jan. 1, 2017, and it will be removed from the FFI list.

In FAQ 11 (Registration Update), IRS advised that if an entity must renew its FFI agreement but incorrectly selected “No,” when asked whether it was required to renew the FFI agreement, it may return to its FATCA FFI Registration system home page, click on the “Renew FFI Agreement” link, and select “Yes” to complete its renewal before the July 31, 2017, deadline.

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

FATCA—FAQs General, Registration Update (July 3, 2017).

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