FATCA Foreign Financial Institutions (FFI) Agreement Draft Released
Posted by William Byrnes on October 29, 2013
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 category 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, and 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 of over a month. Since August 19, FFI 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 today 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 an 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,” Deputy Assistant Secretary for International Tax Affairs Robert B. Stack is reported to have said with today’s notice release. “Today’s preview demonstrates the Administration’s commitment to ensuring full global cooperation and a smooth implementation.”
Treasury added comments directed at critics of the compliance costs of FATCA: “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.”
“Treasury is releasing necessary pieces of this FATCA puzzle very close to the compliance deadlines, given 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”, said Professor William Byrnes. “Some firms will simply not be FATCA-compliant by next year’s deadlines, and I don’t think there will be another postponement of due diligence deadlines. Moreover, as it stands now, I don’t foresee the FATCA withholding refund procedures working smoothly either. Congress is making too many commitments for Treasury without giving Treasury the necessary resources to meet those commitments, and the shutdown didn’t help.”
- The IRS Notice is available as a PDF at > FATCA October 29 Notice and Draft FFI Agreement <
- For 440 pages of detailed FATCA analysis see http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247
- 20% discount code for book available at https://profwilliambyrnes.com/2013/10/11/2436/
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