IRS has revised its frequently asked questions (FAQs) on the Foreign Account Tax Compliance Act (FATCA) to provide guidance to trustees needing to register trustee-documented trusts. (A trustee-documented trust is a certified deemed-compliant status for foreign financial institutions (FFIs) under the Model 1 and Model 2 intergovernmental agreements (IGAs)).
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 financial institution (FI) 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).
To ease the burdens of FATCA implementation and compliance, the U.S. issued two model IGAs (Model 1 or Model 2 IGA) that are designed to increase reporting compliance by FFIs while addressing difficulties with implementation under FATCA partner’s local law.
To the extent that it receives withholdable payments and isn’t subject to an exemption from the registration requirement (such as for a certified deemed-compliant FFI), an FFI that is in a non-IGA country and that doesn’t register with IRS will be subject to 30% withholding under the Chapter 4 rules. In order for withholding not to apply, a withholding agent must obtain an FFI’s Global Intermediary Identification Number (GIIN) for payments made after June 30, 2014.
IRS’s updated guidance. IRS has revised FAQs that it has issued on FATCA to provide that trustees needing to register trustee-documented trusts should use the same procedures sponsors use to register sponsored entities.
A trustee-documented trust is a certified deemed-compliant status for FFIs under the Model 1 and Model 2 IGAs. Model I describes a trustee-documented trust as a trust established under the laws of a FATCA Partner to the extent that the trustee of the trust is a reporting U.S. FI, reporting Model 1 FFI, or participating FFI, and reports all information required to be reported pursuant to the Agreement with respect to all U.S. reportable accounts of the trust. Similarly, Model 2 describes a trustee-documented trust as a trust established under the laws of the FATCA Partner to the extent that the trustee of the trust is a reporting U.S. FI, reporting Model 1 FFI, or participating FFI and reports all information required to be reported pursuant to the Agreement with respect to all U.S. Accounts of the trust; such a trust is a non-reporting FATCA Partner FI treated as a certified deemed-compliant FFI for purposes of Code Sec. 1471.
The FATCA FAQs provide that the trustee should select “Sponsoring Entity” as its FI Type, and select “None of the above” in Part 1, Question 4. IRS notes that if a trustee is required to register itself based on its own applicable status as an FFI, it is to do so on a separate registration, and so would have two separate GIINs, one for such use and another for use in its capacity as a trustee of a trustee-documented trust. The trustee-documented trust itself would not be registered and doesn’t need to obtain a GIIN.