Countdown to FATCA

in Audit, Financial Services, 24.06.2014

In the last couple of months most of the institutions affected by FATCA – financial institutions as well as non-financial companies – were still scrambling to become FATCA compliant. Therefore, let’s have a look at recent developments since May 2014 and what needs to be done in the next few weeks to ensure FATCA compliance once it becomes effective on 1 July 2014.

IRS publishes First FFI List

On 2 June 2014 the IRS released the first FFI List, including all FFIs that registered with the IRS on the FATCA portal by 23 May 2014 and which have obtained a Global Intermediary Identification Number (GIIN). Furthermore, the IRS indicated that it will update the FFI List on the first of each month. The List will include all FFIs and branches that are approved at the time the list is compiled. In general, the cut-off date is five business days prior to the end of the previous month. Institutions wishing to be listed on the July FFI List should therefore remember that the next cut-off date is 24 June 2014. This link leads you to the FFI list search and download tool: http://apps.irs.gov/app/fatcaFfiList/flu.jsf

On the first FFI List, a total of 77,353 GIINs were assigned. The Cayman Islands lead the list with 14,837 (appr. 19 percent) registrations. The United Kingdom takes second place with 6,264 (appr. 8 percent) and Switzerland third with 4,041 (appr. 5 percent) registrations. The following chart shows the breakdown of the possible categories within Switzerland:

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Based on our assessment, an impressive 90 percent Swiss FFIs which would have been obliged to register with the IRS did so and have now obtained a GIIN.

138 countries still have not reached an agreement with the USA

On 2 April 2014 the US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) published Notice 2014-17 disclosing that jurisdictions which have reached agreements in substance with the USA prior to 1 July 2014 and have consented to be included on the Treasury and IRS lists will be treated as having an IGA in effect until the end of 2014. As of 18 June 2014, 77 countries had reached an agreement with the US as opposed to 138 countries which still have not reached an agreement with the USA, despite also being subject to FATCA regulations. The table below shows all of the jurisdictions which have signed an agreement or have reached an agreement in substance as of 18 June 2014:

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6-Month Extension for Onboarding Entity Accounts Holders & Limited IRS Enforcement

On 2 May 2014 the IRS issued Notice 2014-33, announcing that entity accounts opened on or after 1 July 2014 and before 1 January 2015 may be considered as preexisting entity accounts, thus giving the Foreign Financial Institutions (FFIs) more time to implement new account-opening procedures with regard to entity accounts. Moreover, this relief has also been extended to obligations held by an entity that are opened, executed or issued during the aforementioned period. Such an obligation would be deemed to be preexisting for the purposes of FATCA due diligence as well as withholding requirements. These amendments are only applicable to obligations held by entities.

Obligations held by individuals are not affected since the procedures for documenting individual accounts are less complex and the instructions for form W-8BEN were already released on 3 March 2014. It should be noted that these changes do not affect either the timelines provided in the final nor in the temporary FATCA regulations with regard to due diligence, reporting and withholding.

Furthermore, the IRS announced in the same Notice that the calendar years 2014 and 2015 will be regarded as transition periods for purposes of IRS enforcement and administration with respect to the implementation of FATCA due diligence, reporting and withholding as well as certain due diligence and withholding provisions under Chapters 3 (non-resident alien withholding and reporting) and 61 (domestic reporting), and section 3406 (backup withholding). This means that the IRS will take into consideration to which extent withholding agents, FFIs as well as other entities with FATCA responsibilities have made bona fide efforts to comply with the requirements of the FATCA regulations as well as the temporary coordination regulations. To some extent, this relief may help FFIs as well as withholding agents which have made sincere efforts to comply with FATCA and the temporary coordination regulations but are struggling to meet the tight deadlines imposed under Chapter 4.

New Forms and Guidance

  • On 30 April 30 2014 the IRS published the final version of form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain US Branches for United States Tax Withholding and Reporting) for 2014.
  • On 2 May 2014 the IRS also released the final version of the instructions for form W-8EXP (Certificate of Foreign Government or Other Foreign Organization for United States Withholding and Reporting). The final version of form W-8EXP had already been released in April 2014.
  • On 5 May 2014 the IRS also posted the final version of the instructions for the form 1042 (Annual Withholding Tax Return for US Source Income of Foreign Persons) for 2014. The final version of the form 1042 had already been published in March 2014.
  • On 13 May 2014 the IRS also released the final version of form 1042-T (Annual Summary and Transmittal of Forms 1042-S) for 2014. The form is to be used to transmit form 1042-S in hardcopy (Foreign Person’s U.S. Source Income Subject to Withholding) to the IRS.
  • On 19 June, 2014 the IRS published the final version of the instructions for form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain US Branches for United States Tax Withholding and Reporting) for 2014.

FATCA Qualification Committee

On 15 May 2014, the FATCA Qualification Committee, led by the State Secretariat for International Financial Matters (SIF) and the Swiss Federal Tax Administration, the Swiss Federal Social Insurance Office and several other institutions, released a Q&A document where questions regarding the implementation of FATCA are answered. This Q&A document can be downloaded here: http://www.sif.admin.ch/themen/00502/00807/00906/index.html?lang=en

Updated IGA Versions

On 9 June 2014, the Treasury Department released updated versions of the Model 1 and 2 IGAs. In light of the forthcoming Automatic Exchange of Information (AEoI), certain paragraphs were removed and others were added (Annex I) to take into account the extension of 6 months for onboarding entity accounts holders as well as the transition period.

Next steps

As FATCA will come into effect on 1 July 2014, FFIs which have not yet registered and whose country fall under the final regulations (or where the country has entered into a Model 2 IGA) will have to do so by no later than 30 June 2014. Therefore, it is vital that FFIs as well as non-financial companies in such countries determine their Chapter 4 status before the aforementioned date and initiate the necessary steps to become FATCA compliant.

FATCA-compliant onboarding processes for new individual clients have to be up and running by 1 July 2014. To ensure FATCA compliance, institutions’ internal directives have to be modified and new processes have to be established (e.g. account opening forms).

Individual accounts which existed prior to 1 July 2014 are deemed to be preexisting accounts. If they are high-value accounts, they will be subject to account due diligence that needs to be completed by 30 June 2015. Should such US high-value accounts be detected during these enhanced review procedures, the account holder will have to file a form W-9 confirming his US status as well as sign a declaration of consent, enabling the bank to provide the account information directly to the IRS. However, when the bank sends the waiver request to the account holder, they are obliged to enclose an information letter which has been provided by the Swiss Federal Tax Administration. The letter informs US bank clients about the steps involved in a possible administrative assistance procedure under the FATCA agreement.

Further information:


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