Overall there are no big surprises included in the final FATCA regulations. The 544 page document provides a lot of additional guidance and also makes certain concessions based on the comments received from the financial services industry. The major observations are:
Rule Application and Deadlines
- The FFI agreement needs to be signed until the end of 2013 for Swiss FFI’s (Model II).
- Existing Intergovernmental Agreements (IGA’s) are considered being valid (i.e. applicable) although the respective local law or changes to the law has not yet been enacted.
- For FFI’s operating in Model I jurisdictions the final regulations are not applicable unless they would choose to do so.
- The reporting deadline of 30 September 2014 has gone and is now 31 March 2015 for 2013 and 2014. Accounts maintained during 2013 that are outstanding 31 December 2013 are subject to reporting as well.
Relaxed or clarified provisions
- The IRS incorporated guidance around the broader use of existing AML documentation and clarification around status of knowledge.
- The use of third party data providers in relation to entity classification and the reliance upon this information has been specified.
- Certain Credit Card issuers will qualify as a deemed compliant FFI – main focus is that no balances over USD 50,000 should be allowed.
- Passive entities may qualify as NFFE’s meeting certain requirements.
- The threshold in relation to substantial US ownership remains at 10% and is not changed to 25% as requested by the industry.
- The registration process has now been described. The Portal as the IRS calls it will be live on 15 July 2013 and registration should be done until 25 October 2013. On 2 December 2013 the information on who has registered will be published.
- Also FFI’s in Model I countries will most likely have to register (being subject to the IGA negociation obviously).
Compliance Certification and Audit
- The IRS will require a compliance certification by the responsible officer every 3 years.
- The Responsible officer has to carry out periodic review with regards to FATCA compliance.
- The IRS might mandate external audits in cases where they consider it necessary.
- The IRS allows to appoint an external party to verify compliance but this can not be considered a replacement of the responsible officers duty.
- At a first look the local FFI’s definition has not changed, for example will the 98% threshold remain (i.e. only 2% of the client base can be non-resident clients).
- Insurance companies are now as well allowed to use the local FFI.
- There is one major provision however, which will make the application difficult. The local FFI status (i.e. not reporting of US Persons) is only applicable to the extend that the local AML rules require to check the residency of the customer. This is not (or at least not yet) the case in Switzerland.
The piece missing for Switzerland is the publication of the IGA between Switzerland and the US, which is expected to be broadly in line with the Model II draft agreement published in Q4 2012.
There is no further guidance to be expected on how to apply the rules by the IRS so it is now the duty of the companies in scope to start or restart implementation of FATCA.