William Byrnes' Tax, Wealth, and Risk Intelligence

The June 3^rd deadline for FATCA FFI registration to be included on the July 1 GIIN list has come and now gone.  In the past two weeks, only four additional IGAs have been added to the list (Turkey, Seychelles, UAE and Barbados) so that as of Tuesday June 3, 2014, only 70 FATCA IGAs have been signed or treated as if signed.  These 70 include 29 signed Model 1s with another 34 treated as if signed, and 5 signed Model 2s with 2 treated as if signed.  (Thank you to reader Alain Thielemans who alerted me to the two new IGAs published by Treasury today before I posted this story).

140 IGAs still left to be agreed by Treasury?

The USA recognizes 196 independent states in the world (the IRS recognizes Palestine as a State according to the 23 State of Palestine FFIs on the IRS FATCA list, otherwise the State Department only recognizes 195, at least according to its website), 67 dependencies of states, and has contacts with Taiwan.  But not each of these 67 dependencies requires an IGA.  14 of these jurisdictions are dependencies of the United States for which the financial institutions are not included in the definition of “foreign financial institutions” subject to FATCA registration.

Approximately 16 dependencies of the remaining 53 have both local responsibility with regard to tax policy and more than de minimis US source income exposure, such as investments in US Treasuries, for the local authorities to seek an IGA. Such dependencies include by example Bermuda, Cayman Islands, and Hong Kong.  Taiwan has its own peculiar status, claiming to represent the central government of greater China (the US of course recognizes Beijing).  Other dependencies, like the French departments of French Guiana, Guadeloupe, Martinique, Mayotte and Reunion, do not have local responsibility for fiscal policy and thus are protected within the IGA of the parent-state.  And a host of dependencies, such as Antarctica and various atolls, have no (current) global economic relevance.

Yet interestingly, even the British Indian Ocean Territory has a registered FATCA financial firm, albeit a Russian financial institution AK BARS Investments Corporation (see http://www.akbars.ru/en/about/).  Falkland Islands even had a registration, a branch, as did Wallis and Futuna (a French Pacific territory).

Thus, 196 recognized states and 16 economically relevant, semi-autonomous dependencies form the pool of 212 states and jurisdictions that probably need an IGA.  As of June 3rd, 70 have an IGA recognized by US Treasury, leaving 142 without.  FFIs in the remaining 140 countries and jurisdictions that did not register by today will have 30% withheld for Title IV (FATCA) purpose by US withholding agents who are gearing up their software systems to begin this withholding for payments made from July 1^st.

How many FFIs did not register for FATCA (yet)?

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on the July 1^st GIIN list of participating foreign financial institutions (“PFFI”) passed. See my previous article about the May 5th deadline and consequences of its passing that applied to all FFIs in the non-IGA states and jurisdictions.

Did all the FFIs that are in the 142 countries and jurisdictions that do not have an IGA register for a GIIN?  Not even close since only 77,353 registered by the May 5 deadline to be included on the June 2nd GIIN list, and 20% of those were Cayman Islands firms (see my article yesterday breaking down the list).

There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration.  It is a range of as few as 80,000 entities that qualify as FFIs still need to register or complete registration for a GIIN, but it could be as many as 380,000 still need to register.  The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks.  The IRS has said that “At this time, the full FFI list is expected to be less than 500,000 records.”  If Cayman Islands is an indicator of a jurisdiction, then at 14,836 registered, the GIIN list will swell to the 500,000 figure by end of year.

BVI has 1,837 so far,  2.053 Netherlands financial firms registered, and nearly twice as many Swiss firms, 4,040, had GIINs.  Liechtenstein only had 239 register.  Of the BRIC countries, only 211 China firms were registered to date, 246 Indian ones, and 514 Russian ones, compared to 2,258 for Brazil.

It is possible that on July 1st an unregistered FFI is considered non-participating (NPFFI) for purposes of FATCA withholding, but by example, on August 1st its country agrees an IGA in substance that Treasury announces on its FATCA site and the NPFFI goes back to FFI non-withholding status because of the extension related to IGAs, at least until that final December 22 deadline mentioned in Announcement 2014-1.  Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W8-BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

Is the June 3rd Deadline a Drop-Dead Deadline?

Yes and No.  The IRS states the following on its FATCA Registration Portal: “the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014.”  (See Notice 2014-17, page 6: “FFIs that finalize their registrations after … June 3 may still be included on the … July 1 IRS FFI List; however, the IRS cannot provide assurance that this will be the case.”)

Yet, the IRS built in a 90 day safeguard for FFIs when a GIIN has been applied for but not yet received:

§1.1471-3(e)(3) Participating FFIs and registered deemed-compliant FFIs—(i) In general. … A payee whose registration with the IRS as a participating FFI or a registered deemed-compliant FFI is in process but has not yet received a GIIN may provide a withholding agent with a Form W-8 claiming the chapter 4 status it applied for and writing “applied for” in the box for the GIIN. In such case, the FFI will have 90 calendar days from the date of its claim to provide the withholding agent with its GIIN and the withholding agent will have 90 calendar days from the date it receives the GIIN to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a participating FFI or registered deemed-compliant FFI. … (emphasis added)

Do FFIs in IGA countries have an extension until December 22 for FATCA Registration? 

Financial institutions (FFIs) in the 68 IGA countries have an extension to register with the IRS in order to obtain a GIIN and thus appear on the IRS’ FATCA compliant list.  FATCA 30% withholding for FFIs in these Model 1 IGA countries and jurisdictions only begins January 1, 2015.

See Reg. § 1.1471-3(d)(4)(iv)(A): § 1.1471-3(d)(4)(iv) Exceptions for payments to reporting Model 1 FFIs.— (A) For payments made prior to January 1, 2015, a withholding agent may treat the payee as a reporting Model 1 FFI if it receives a withholding certificate from the payee indicating that the payee is a reporting Model 1 FFI and the country in which the payee is a reporting Model 1 FFI, regardless of whether the certificate contains a GIIN for the payee.

The situation of the last list to be published for 2014 and, more importantly, the last date to register as a Model 1 FFI to ensure being included on that list, is somewhat fluid.  In the past 18 months, the IRS has several times amended its deadlines and its timelines for GIIN registration.  Thus, it is at least feasible that another registration or withholding start date extension is granted before the end of 2014 (obviously Treasury will vehemently deny any more extensions on the horizon, but last year it did not expect a government shut down and this year it extended the registration date by at least 10 days weeks before the deadline of April 25).

In its January 6, 2014 Announcement 2014-1 (IRB 2014-2), the IRS stated:

Thus, while reporting Model 1 FIs will be able to register and obtain GIINs on or after January 1, 2014, they will not need to register or obtain GIINs until on or about December 22, 2014, to ensure inclusion on the IRS FFI list by January 1, 2015. (emphasis added)

However, at least one IGA country is suggesting an earlier (perhaps more prudent) date than December 22, 2014 for GIIN registration in order to be included on the IRS’ last 2014 FATCA compliant list.  The United Kingdom’s Law Society and Institute of Chartered Accountants in May 2014 published combined guidance to members stating:

To ensure that the registration has been processed in time for inclusion on that list the last practical date for registration is 25 October 2014.

The IRS will release its final 2014 list of FATCA compliant financial institutions (thus not subject to FATCA 30% withholding on January 1, 2015 and onward) most likely on Wednesday, December 31, 2014 (according to the United Kingdom guidance quoted above), albeit it seems just as reasonable for a Friday, January 2 list to be released.   The 90 day safeguard mentioned above is also in place for the IGA deadlines.

Jurisdictions that have signed agreements:

Model 1 IGA – 29

1. Australia (4-28-2014)
2. Belgium (4-23-2014)
3. Canada (2-5-2014)
4. Cayman Islands (11-29-2013)
5. Costa Rica (11-26-2013)
6. Denmark (11-19-2012)
7. Estonia (4-11-2014)
8. Finland (3-5-2014)
9. France (11-14-2013)
10. Germany (5-31-2013)
11. Gibraltar (5-8-2014)
12. Guernsey (12-13-2013)
13. Hungary (2-4-2014)
14. Honduras (3-31-2014)
15. Ireland (1-23-2013)
16. Isle of Man (12-13-2013)
17. Italy (1-10-2014)
18. Jamaica (5-1-2014)
19. Jersey (12-13-2013)
20. Liechtenstein (5-19-2014) <– IGA officially signed, moved from list below
21. Luxembourg (3-28-2014)
22. Malta (12-16-2013)
23. Mauritius (12-27-2013)
24. Mexico (4-9-2014)
25. Netherlands (12-18-2013)
26. Norway (4-15-2013)
27. Slovenia (6-2-2014) <– IGA officially signed, moved from list below
28. Spain (5-14-2013)
29. United Kingdom (9-12-2012)

Model 2 IGA – 5

1. Austria (4-29-2014)
2. Bermuda (12-19-2013)
3. Chile (3-5-2014)
4. Japan (6-11-2013)
5. Switzerland (2-14-2013)

Jurisdictions that have reached agreements in substance and have consented to being included on this list (beginning on the date indicated in parenthesis):

Model 1 IGA – 34

1. Azerbaijan (5-16-2014)
2. Bahamas (4-17-2014)
3. Barbados (5-27-2014) <– new IGA agreed
4. Brazil (4-2-2014)
5. British Virgin Islands (4-2-2014)
6. Bulgaria (4-23-2014)
7. Colombia (4-23-2014)
8. Croatia (4-2-2014)
9. Curaçao (4-30-2014)
10. Czech Republic (4-2-2014)
11. Cyprus (4-22-2014)
12. India (4-11-2014)
13. Indonesia (5-4-2014)
14. Israel (4-28-2014)
15. Kosovo (4-2-2014)
16. Kuwait (5-1-2014)
17. Latvia (4-2-2014)
18. Lithuania (4-2-2014)
19. New Zealand (4-2-2014)
20. Panama (5-1-2014)
21. Peru (5-1-2014)
22. Poland (4-2-2014)
23. Portugal (4-2-2014)
24. Qatar (4-2-2014)
25. Romania (4-2-2014)
26. Seychelles (5-28-2014) <– new IGA agreed
27. Singapore (5-5-2014)
28. Slovak Republic (4-11-2014)
29. South Africa (4-2-2014)
30. South Korea (4-2-2014)
31. Sweden (4-24-2014)
32. Turkey (6-3-2014) <– new IGA agreed
33. Turks and Caicos Islands (5-12-2014)
34. United Arab Emirates (5-23-2014) <– new IGA agreed

Model 2 IGA – 2

1. Armenia (5-8-2014)
2. Hong Kong (5-9-2014)

Practical Compliance Aspects of FATCA and GATCA

The LexisNexis® Guide to FATCA Compliance (2^nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf