FATCA – Implications for Non-Financial Groups? – New Deadline

in Commodities Trading, Financial Services, 06.01.2014

Although FATCA’s primary impact is on foreign financial institutions (FFIs), non-financial groups and entities are also subject to FATCA in their role as a US payor/withholding agent or as a foreign payee/recipient of payments subject to FATCA. As such, FATCA will impose significant compliance requirements on non-financials groups.


Therefore, both domestic and multinational enterprises are well-advised to familiarize themselves with the Foreign Account Tax Compliance Act (FATCA) requirements to find out whether they could be considered to be a Foreign Financial Institution (FFI) or a Non-Financial Foreign Entity (NFFE).

Qualifying for one or the other will have a number of impacts on the next steps to be taken. Commodities traders will be particularly affected by FATCA. The reason for this is that under FATCA the term “financial assets” may also include commodities. Thus, any foreign investment entity trading in commodities, e.g. oil and gas, whether settled physically or in cash, should register as an FFI as this could qualify as trading in “financial assets.”

What to do

Both domestic and multinational companies will do well to determine their status in regard to FATCA. This is important as the final regulations and the Intergovernmental Agreements (IGAs) prescribe different deadlines, the most notable being 1 January 2015 (changed from 1 July 2014). This is the moment by when counterparties have to be established in order to flag US payments subject to a potential withholding tax of 30%, which is levied if a counterparty is not FATCA-compliant. In a company construct with several enterprises, the individual legal entities and sub-holding companies must be analyzed and their FATCA classification must be defined. If qualifying as an FFI due to their business activities, they will have to register with the IRS and – depending on their classification – will have to meet certain requirements. Should the company dispose of a treasury department, it has to monitor its investment activities (including swaps, futures and other hedging transactions) and the so-called “transfer agency agreements” to ensure that no funds from non-compliant institutions are accepted and therefore no withholding tax will apply.

All foreign legal entities with FFI characteristics have to determine whether they are FFIs or not before the above-mentioned deadline so they can register with the Internal Revenue Service (IRS) if necessary. The registration portal is already open and those who register by 25 April 2014 will be on the IRS’s first published list.

Our suggestion

In view of all of the above-mentioned requirements, we strongly recommend industrial companies do the following:

Coordinate their FATCA requirements

  • Assess the FATCA “Expanded Affiliated Group”
  • Identify potential financial companies / treasury centers / sub-holdings, etc., not domiciled in an IGA country
  • Clarify FATCA classification

Assess counterparties / products

  • Identify potential counterparties as well as products which are not FATCA compliant


  • Ensure communication regarding FATCA implementation / compliance with internal and external stakeholders

Ensure governance / compliance

  • Update of guidelines and policies
  • Consideration of liability clauses regarding any applicable withholding taxes



Further information


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