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By Professor William Byrnes, - co-author of LexisNexis® Guide to FATCA Compliance; co-author of Foreign Tax & Trade Briefs
FATCA Registration Portal Open for Business
FATCA requires that FFIs, through a responsible officer (a.k.a. “FATCA compliance officer”), make regular certifications to the IRS via the FATCA Portal, as well as annually disclose taxpayer and account information for U.S. persons, unless an intergovernmental agreement allows for indirect reporting to the IRS via a foreign government. On Monday, August 19 the IRS opened its new online FATCA registration system for financial institutions that need to register for compliance with the Foreign Account Tax Compliance Act. [See https://sa2.www4.irs.gov/fatca-rup/login/userLogin.do.] This critical FATCA milestone was supposed to open July 15; however only on July 12 did the IRS issued a postponement, as well as a push back all of the corresponding impacted milestones and deadlines. See Lexis article: FATCA FFI Compliance Extended; FATCA Portal, Other Key Dates Pushed Back.
Participating FFI List to Avoid FATCA Withholding
FFIs will now have 8 months, until April 25, 2014, to register on this portal to be included on the Participating FFI List that the IRS will publish June 2, 2014. The six month delay pushed back, until July 1, 2014, a 30 percent FATCA withholding on payments of U.S. source income, including portfolio interest and capital gains, made to FFIs not on the Participating FFI list.
Global Intermediary Identification Number (GIIN)
An FFI will be included on the Participating FFI (“PFFI”) List if the FFI has registered via the FATCA Portal that the FFI agrees to comply with the IRS’ Foreign Financial Institution Agreement (“FFI Agreement”). [Treas. Reg. § 1-1471-4(a).] The IRS will begin issuing each PFFI a Global Intermediary Identification Number (GIIN) as portal registrations are finalized by April 25, 2014. The PFFI will then include on its certification to U.S. withholding agents that GIIN -- allowing matching against the PFFI List. [On April 8. 2013 the IRS released a sample of the PFFI List schema with example GIINs. See http://www.irs.gov/Businesses/International-Businesses/IRS-FFI-List-Schema-and-Test-Files.] The IRS will begin publishing the monthly electronic FFI List of participating FFIs and registered deemed-compliant FFIs (including reporting FFIs who are covered by an intergovernmental agreement) with their respective GIINs as of June 2, 2014.
Participating Foreign Financial Institution Requirements
FATCA withholding agents generally will be required to implement new account opening procedures by July 1, 2014 instead of January 1. For Participating Foreign Financial Institutions (“PFFI”), new account opening procedures are correspondingly extended to at least July 1, 2014, but even further to the effective date of its FFI agreement if it registers timely via the FATCA Portal. By registering to comply with the FFI Agreement, the institution agrees to: [IRC § 1471(b)(1).]
(1) Obtain and maintain information regarding each account as required to determine which accounts are U.S. accounts. [IRC § 1471(b)(1)(A).]
(2) Comply with verification and due diligence procedures as required with respect to the identification of U.S. accounts. [IRC § 1471(b)(1)(B).]
(3) Report annually certain information relating to any U.S. account maintained by the institution. [IRC § 1471(b)(1)(C).]
(4) Deduct and withhold 30% from any passthru payment that is made to a recalcitrant account holder, or another non-participating FFI, or a FFI that has elected to be withheld upon rather than to withhold with respect to the allocable portion of the payment to recalcitrant account holders. [IRC § 1471(b)(1)(D).]
(5) Comply with requests by the Secretary for additional information regarding any United States account maintained by the institution. [IRC § 1471(b)(1)(E).]
(6) Attempt to obtain a valid waiver in any case in which any foreign law would (but for a waiver) prevent the reporting of information required by the provision regarding any U.S. account maintained by the institution, and to close the account if a waiver is not obtained from each account holder within a reasonable time period. [IRC § 1471(b)(1)(F).]
The FFI must annually provide the IRS, via the FATCA Portal (or to the foreign tax authority wherein an intergovernmental FATCA agreement is in place between the U.S. and a foreign country), information on each of its U.S. accounts, including: [IRC § 1471(c)(1).]
(i) the name, address, and TIN of the account holder which is a specified U.S. person;
(ii) the name, address, and TIN of the substantial U.S. owner of the entity in the case of an account holder that is a U.S. owned foreign entity;
(iii) the account number;
(iv) the account balance or value; and
(v) except as provided by the Secretary, the gross receipts and gross withdrawals or payments from the account as determined by the Secretary.
Draft Form 8966 Released
The IRS issued this past week the draft of the financial institution FATCA reporting form (Form 8966 – “FATCA Report”). [See http://www.irs.gov/pub/irs-dft/f8966--dft.pdf.] The FATCA Report form, dated August 13, 2013 but released the following day, is for foreign financial institutions and also withholding agents to report financial information about account holders.
The 8966 Form has five sections:
(1) Identification of Filer,
(2) Account Holder or Recipient Information,
(3) Identifying Information of U.S. Owners that are specified U.S. Persons,
(4) Financial Information, and
(5) Pooled Reporting Type.
The Financial Information section contains seven reporting fields, being:
(i) account number;
(ii) currency code;
(iii) account balance;
(vi) gross proceeds/redemptions; and
The “Pooled” Reporting requires the FFI to indicate firstly which of six buckets the underlying accounts fall into, then secondly, financial information about the bucket. The six buckets are:
(1) Recalcitrant account holders with U.S. Indicia;
(2) Dormant Accounts;
(3) Recalcitrant account holders that are U.S. persons;
(4) Recalcitrant account holders without U.S. Indicia;
(5) Non-participating foreign financial institutions; and
(6) Recalcitrant account holders that are passive NFFEs.
The reported financial information includes: (a) number of accounts, (b) aggregate payment amount, (c) aggregate account balance and (d) currency code.
FFI Due Diligence of Financial Accounts to Identify U.S. Persons
FATCA only requires financial accounts to be reported that exceed the reportable threshold of $50,000. Moreover, FATCA provides that an FFI’s determination of U.S. status of pre-existing customers with accounts greater than $50,000 ($250,000 for NFFEs) and up to $1,000,000 may be undertaken by an electronic search of U.S. indicia within the electronic records. [Treas. Reg. § 1-1471-4(c)(5)(i) and Treas. Reg. § 1-1471-4(c)(5)(iv)(D)(1).] For all customers with accounts over the million dollar threshold, the FFI is required to also search the non-electronic files when the electronic records do not contain any U.S. indicia. In addition, for these high value customers, the FFI will be required to perform due diligence with the relationship managers to determine U.S. status based on personal knowledge of the client. U.S. indicia include: [Treas. Reg. § 1-1471-4(c)(5)(iv)(B)(1).]
FATCA Compliance Program and Manual
The FATCA compliance officer will need to collect information about the types of accounts, account holders and transactions, country locations, and lines of business a specific financial enterprise has in order to give competent and thorough advice to Management and the Board of Directors on how the enterprise may best execute a process for an initial and annual FATCA compliance program before the April 25, 2014 closure date of the FATCA Registration Portal for inclusion on the June 2, 2014 Participating FFI List.
The impact of collecting this additional information may be substantial, in many cases requiring major alterations or complete redevelopment of existing business and information reporting processes. The better the FFI tailors the data it pulls to provide to the compliance department, the longer the initial budget will stretch throughout the compliance program setup cycle. While it is important to provide all the required information about accounts and transactions, a report containing, for example, a history of all accounts and transactions will be extremely time consuming and create unnecessary expense.
The LexisNexis® Guide to FATCA Compliance provides a framework for meaningful interactions among enterprise stakeholders, and between the compliance department and its advisors / vendors. Analysis of the complicated regulations, recognition of overlapping complex regime and intergovernmental agreement requirements (e.g. FATCA, Qualified Intermediary, source withholding, national and international information exchange, European Union tax information exchange, information confidentiality laws, money laundering prevention, risk management, and the application of an IGA) is balanced with substantive analysis and descriptive examples. The challenges of the compliance department are approached from several perspectives and contextual backgrounds.
The four hundred page Manual comprises 25 Chapters grouped in three parts: compliance program (Chapters 1-4), analysis of FATCA regulations (Chapters 5 – 13) and analysis of FATCA’s application for certain trading partners of the U.S., including intergovernmental agreements (Chapters 14 – 25).
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