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On October 29, 2013, the IRS released the long awaited FFI draft agreement and an accompanying notice incorporating updates to certain due diligence, withholding, and other reporting requirements released earlier this year (click the FATCA topic on the left for previous coverage). The FFI draft agreement provides the proposed guidance for FFIs to comply with the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA).
The IRS is committed to finalizing the FFI agreement by the end of 2013 because client due diligence and withholding requirements begin July 1, 2014. These due diligence and withholding requirements were this summer pushed back 6 months from January 1, 2014. The first FATCA information reports are due by PFFIs to the IRS in March 2015 via IRS Form 8966, FATCA Report, which includes the FATCA Report XML.
The IRS FATCA registration website for FFIs has been open since August 19, but also cast off to a late start - over a month late, in fact. Since August 19, FFIs have begun testing the registration process and entering information. The IRS expects to issue GIINs (Global Intermediary Identification Numbers) in early 2014. A Model 2 Reporting FFI (RFFI) that registers with the IRS to obtain a global intermediary identification number (GIIN) and complies with the terms of the FFI agreement, as modified by the applicable Model 2 IGA, will be treated as complying with the requirements of, and not subject to, FATCA withholding.
The draft FFI agreement released on October 29 is for participating FFIs (PFFI) that directly engage in an agreement with the IRS and those RFFIs reporting through a Model 2 intergovernmental agreement (IGA). To date, Treasury has signed nine IGAs, of which two are based on Model 2; has reached 16 agreements in substance; and is engaged in related conversations with many more jurisdictions. For an in-depth compliance analysis of the elements of these IGAs, see LexisNexis® Guide to FATCA Compliance. The Model 2 IGA framework allows FFIs to report directly to the IRS to the extent that the account holder consents or that such reporting is otherwise legally permitted. Non-consenting account holders’ information may be obtained via normal information exchange between the governments.
An FFI may register on Form 8957, FATCA Registration, via the FATCA registration website available at http://www.irs.gov/fatca to enter into an FFI agreement on behalf of its branches (including its home office) so that each of such branches may be treated as a participating FFI. A reporting Model 2 FFI may also register on the FATCA registration website, on behalf of one or more of its branches (including its home office), to obtain a GIIN and to agree to comply with the terms of an FFI agreement, as modified by an applicable Model 2 IGA. The PFFI must appoint a responsible officer to establish a FATCA compliance program who then periodically reviews the sufficiency of the FATCA compliance program.
“The Agreement and forthcoming guidance have been designed to minimize administrative burdens and related costs for foreign financial institutions and withholding agents,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. “Today’s preview demonstrates the Administration’s commitment to ensuring full global cooperation and a smooth implementation.”
Treasury stated that "The regulations were intentionally designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years. For example, the final regulations exempt all preexisting accounts held by individuals with $50,000 or less from review. For similar accounts with less than $1,000,000, an FFI is only required to search the account information that is electronically available. In many cases, FFIs are permitted to rely on information that they already must collect for local anti-money laundering and know-your-customer rules."
William Byrnes stated "Treasury is releasing necessary pieces of this FATCA puzzle very close to the compliance deadlines, considering the necessary systems implementation required by PFFIs and RFFIs - albeit the longer than 2 week government shutdown certainly wasn't on anybody's radar screen."
The IRS Notice is available as a PDF at > FATCA October 29 Notice and Draft FFI Agreement
Notice 2013-69 is also available to LEXIS users HERE.
LEXIS users can also view:
"FATCA Notice Offers Insight on Proposed Reg Updates," taxanalysts® Tax Notes Today, October 30, 2013; and
"IRS Issues Guidance on Use of Foreign Financial Institution Agreement," taxanalysts® Tax Notes Today, October 30, 2013
For 440 pages of detailed FATCA analysis see the Lexis bookstore for the LexisNexis® Guide to FATCA Compliance.
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