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William Byrnes (Texas A&M) tax & compliance articles

New FATCA Frequently Asked Questions (FAQs) Released

Posted by William Byrnes on April 4, 2014


On July 1, 2014 FATCA withholding must be implemented for certain transactions (see Chapter 12 FATCA Withholding Compliance, LexisNexis® Guide to FATCA Compliance).  FATCA requires that a withholding agent must obtain an FFI’s GIIN for payments made from July 1, 2014 and must confirm that the GIIN appears on the IRS FFI List. However, an exception provides that a withholding agent does not need to obtain a reporting Model 1 FFI’s GIIN for payments made before January 1, 2015.

The IRS disclosed that “some FFIs that expect to be reporting Model 2 FFIs may not be able to register by April 25 if legal impediments would prevent them from agreeing to the terms of the FFI Agreement that would apply absent the modifications applicable to reporting Model 2 FFIs under a signed Model 2 IGA.”

“Some FFIs”, reported the IRS, “…expect to be reporting Model 1 FFIs … are concerned about missing the April 25 deadline in case the relevant IGA is not in fact signed, and therefore treated as being in effect, by July 1.”  Treasury has signed IGAs with 26 jurisdictions and has reached agreements in substance with 20 more that have been published, and is in advanced discussions with many others.  Treasury and the IRS have on April 2, 2014 issued Announcement 2014-17 to provide some level of comfort to FFIs in such jurisdictions that already have reached an IGA in substance and to USWAs paying agents.  See https://profwilliambyrnes.com/2014/04/03/treasury-releases-22-new-fatca-igas/

Moreover, the IRS has also granted an extension of 10 (ten) days, previously April 25 but now May 5, 2014 (GMT -5), for an FFI to register via the FATCA Registration Portal to be included on the PFFI Global Intermediary Identification Number (GIIN) list to be issued June 2, 2014.  But Treasury and the IRS remind all withholding agents that, in accordance with Reg. §1.1471-3(e)(3), a withholding agent that receives a Form W-8 from a payee with a GIIN that does not yet appear on the published IRS FFI List has 90 days to verify that the GIIN appears on the list before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect. In addition, a withholding agent that receives a Form W-8 from a payee indicating that the payee has applied for a GIIN has 90 days to obtain the GIIN from the payee and verify it against the IRS FFI List before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect.

On April 4, the following additional FATCA FAQS were released:

# Questions Answers
_Qualified Intermediaries/Withholding Foreign Partnerships/Withholding Foreign Trusts
Q1. How does a Financial Institution that is not currently a Qualified Intermediary (“QI”), a Withholding Foreign Partnership (“WP”), or a Withholding Foreign Trust (“WT”) register to become one? The process to become a QI, WP or WT has not been modified by the provisions of FATCA.

The application for Qualified Intermediary status can be found here: QI Application

Information on acquiring Withholding Foreign Partnership, or Withholding Foreign Trust status can be found here: WP/WT Application

Q2. How do FIs that are currently QIs, WPs and WTs renew their agreements? Existing QIs, WPs and WTs are required to renew their QI agreements through the FATCA registration website as part of their FATCA registration process.

All QI, WP, or WT agreements that would otherwise expire on December 31, 2013 will be automatically extended until June 30, 2014.  (Notice 2013-43; 2013-31 IRB 113).

Q3. If an FFI has a QI/WP/WT agreement in place, does the Responsible Party for purposes of the QI/WP/WT Agreement also have to the serve as the FFI’s Responsible Officer? No, the FFI’s Responsible Party for purposes of a QI/WP/WT Agreement does not have to be the Responsible Officer chosen by the FFI for purposes of certification under the regulations or for FATCA Registration purposes.
_IGA Registration
Q4. Please provide a link that lists the jurisdictions treated as having in effect a Model 1 or Model 2 IGA. The U.S. Department of Treasury’s list of jurisdictions that are treated as having an intergovernmental agreement in effect can be found by clicking on the following link: IGA LIST
Q5. How do Foreign Financial Institutions in Model 1 jurisdictions register on the FATCA registration website? Financial Institutions that are treated as Reporting Financial Institutions under a Model 1 IGA (see the list of jurisdictions treated as having an IGA in effect at IGA LIST) should register as Registered Deemed-Compliant Foreign Financial Institutions.

More information on registration can be found in the FATCA Registration Online User Guide:User Guide Link (See Section 2.4 “Special Rules for Registration”)

Q6. How do Foreign Financial Institutions in Model 2 jurisdictions register on the FATCA registration website? Financial Institutions that are treated as Reporting Financial Institutions under a Model 2 IGA (see the list of jurisdictions treated as having an IGA in effect at IGA LIST) should register as Participating Foreign Financial Institutions.

More information on registration can be found in the FATCA Registration Online User Guide:User Guide Link (See Section 2.4 “Special Rules for Registration”)

Q7. We are an FFI in a country that has not signed an IGA, and the local laws of our country do not allow us to report U.S. accounts or withhold tax. What is our FATCA classification? Unless the Treasury website provides that your country is treated as having an IGA in effect, then, because of its local law restrictions, this FFI should register as a Limited FFI provided it meets the definition shown directly below. See FATCA – Archive   for a list of countries treated as having an IGA in effect.

A Limited FFI means an FFI that, due to local law restrictions, cannot comply with the terms of an FFI Agreement, or otherwise be treated as a PFFI or RDCFFI, and that is agreeing to satisfy certain obligations for its treatment as a Limited FFI.

_Expanded Affiliated Groups
Q8. For registration purposes, can an EAG with a Lead FI and 2 Member FIs be divided into: (1) a group with a Lead FI and a member FI, and (2) a member FI that will register as a Single FI? Yes. An EAG may organize itself into subgroups, so long as all entities with a registration requirement are registered. An FI that acts as a Compliance FI for any members of the EAG is, however, required to register each such member as would a Lead FI for such members.
Q9. What is required for an entity to be a Lead FI? A Lead FI means a USFI, FFI, or a Compliance FI that will initiate the FATCA Registration process for each of its Member FIs that is a PFFI, RDCFFI, or Limited FFI and that is authorized to carry out most aspects of its Members’ FATCA Registrations. A Lead FI is not required to act as a Lead FI for all Member FIs within an EAG. Thus, an EAG may include more than one Lead FI that will carry out FATCA Registration for a group of its Member FIs. A Lead FI will be provided the rights to manage the online account for its Member FIs. However, an FFI seeking to act as a Lead FI cannot have Limited FFI status in its country of residence. See Rev. Proc. 2014-13 to review the FFI agreement for other requirements of a Lead FI that is also a participating FFI.
_Sponsoring/Sponsored Entities
Q10. We are a Sponsoring Entity, and we would like to register our Sponsored Entities. How do we register our Sponsored Entities? The Sponsoring Entity that agrees to perform the due diligence, withholding, and reporting obligations of one or more Sponsored Entities pursuant to Treas. Reg. §1.1471-5(f)(1)(i)(F) should register with the IRS via the FATCA registration website to be treated as a Sponsoring Entity. To allow a Sponsoring Entity to register its Sponsored Entities with the IRS, and, as previewed in Notice 2013-69, the IRS is developing a streamlined process for Sponsoring Entities to register Sponsored Entities on the FATCA registration website. Additional information about this process will be provided by the IRS at a later date.

While a Sponsoring Entity is required to register its Sponsored Entities for those entities to obtain GIINs, the temporary and proposed regulations provide a transitional rule that, for payments prior to January 1, 2016, permit a Sponsored Entity to provide the GIIN of its Sponsoring Entity on withholding certificates if it has not yet obtained a GIIN. Thus, a Sponsored Entity does not need to provide its own GIIN until January 1, 2016 and is not required to register before that date.

_Responsible Officers and Points of Contact
Q11. What is a Point Of Contact (POC)? The Responsible Officer listed on line 10 of Form 8957 (or the online registration system) can authorize a POC to receive FATCA-related information regarding the FI, and to take other FATCA-related actions on behalf of the FI. While the POC must be an individual, the POC does not need to be an employee of the FI. For example, suppose that John Smith, Partner of X Law Firm, has been retained and been given the authority to help complete and submit the FATCA Registration on behalf of an FI. John Smith should be identified as the POC, and in the Business Title field for this POC, it should state Partner of X Law Firm.
_Financial Institutions
Q12. Are U.S. Financial Institutions (USFIs) required to register under FATCA? If so, under what circumstances would a USFI register? A USFI is generally not required to register under FATCA. However, a USFI will need to register if the USFI chooses to become a Lead FI and/or a Sponsoring Entity or seeks to maintain and renew the QI status of a foreign branch that is a QI. Furthermore, a USFI with a foreign branch that is a reporting Model 1 FFI is required to register on behalf of its foreign branches (and should identify each such branch when registering). A USFI with non-QI branch operations in a Model 2 jurisdiction or in a non-IGA jurisdiction is not required to register with the IRS.
Q13. Is a Foreign Financial Institution (“FFI”) required to obtain an EIN? If the FFI has a withholding obligation and will be filing Forms 1042 and Forms 1042-S with the Internal Revenue Service, it will be required to have an EIN. Please see publication 515 (“Withholding of Tax on Nonresident Aliens and Foreign Entities”) for further information about U.S. Withholding requirements. SeePub. 515. An FFI is also required to obtain an EIN when it is a QI, WP, or WT (through the application process to obtain any such status) or when the FFI is a participating FFI that elects to report its U.S. accounts on Forms 1099 under Treas. Reg. §1.1471-4(d)(5).
How does a FFI apply for a EIN if it does not already have one? If a FFI does not have an EIN, it may apply for one using Form SS-4 (“Application for Employer Identification Number”) or the online registration system. See Apply-for-an-Employer-Identification-Number-(EIN)-Onlinefor more information.
_Exempt Beneficial Owners
Q14. We are a foreign central bank of issue. Will we be subject to FATCA withholding if we do not register? You will generally be exempt from FATCA Registration and withholding if you meet the requirements to be treated as an exempt beneficial owner (e.g. as a foreign central bank of issue described in Treas. Reg. § 1.1471-6(d), as a controlled entity of a foreign government under Treas. Reg. §1.1471-6(b)(2), or as an entity treated as either of the foregoing under an applicable IGA). A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner in accordance with the regulations. However, an exempt beneficial owner may be subject to withholding on payments derived from the type of commercial activity described in Treas. Reg. § 1.1471-6(h).
Q15. We are a foreign pension plan. Will we be subject to FATCA withholding if we do not register? You will be exempt from FATCA Registration and withholding if you meet the requirements to be treated as a retirement fund described in Treas. Reg. § 1.1471-6(f), or under an applicable IGA. A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner (in this case, a retirement fund) in accordance with the regulations.
_NFFEs
Q16. How should an entity seeking the FATCA status of “direct reporting NFFE” (other than a sponsored direct reporting NFFE) register for this status to obtain a GIIN in order to avoid FATCA withholding? A direct reporting NFFE is eligible to register for this status and when registering should complete an online registration (or, alternatively, submit a paper Form 8957) based on the instructions provided in this FAQ.   For registrations occurring in years after 2014, it is anticipated that both the online registration user guide and the Instructions for Form 8957 will be updated to incorporate this information.

In general, for purposes of completing the registration of a direct reporting NFFE, substitute the words “direct reporting NFFE” for the words “financial institution” wherever  they appear in the online registration user guide (or in the Instructions for Form 8957).  Unless specific instructions for a registration question are described here in this FAQ, please use the generally applicable instructions provided in the online registration user guide (or in the Instructions for Form 8957).

Part 1

Question 1 – – Select “Single”.

Question 4 – – Select “None of the above”.

Question 6 – – Select “Not applicable”.

Question 7 – – Select “No”.  (If using the portal online, selecting “no” will automatically skip Questions 8 and 9.)

Question 8 – – Skip this question (which relates to branches)

Question 9 – – Skip all parts (a) through (c) of this question (which relate to branches).

Question 10 – – Enter the information of the individual who will be responsible for ensuring that the direct reporting NFFE meets its FATCA reporting obligations and will act as a point of contact with the IRS in connection with its status as a direct reporting NFFE.

Part 2 – – It is not necessary for a direct reporting NFFE to complete this section. (If using the portal online, selecting Single in question 1 will automatically skip Part 2.)

Part 3 – – It is not necessary for a direct reporting NFFE to complete this section. (If using the portal online, selecting “Not Applicable” in question 6 will automatically skip Part 3.)

Part 4 – – The individual who completes this part must have the authority to provide the certification.

Direct reporting NFFE QIs/WPs/WTs should renew their agreements through the existing traditional paper process.  Instructions can be found at the following link (Question IX), see:Qualified-Intermediary-Frequently-Asked-Questions

Q17. How should a sponsor of a sponsored direct reporting NFFE register itself for this status and obtain a GIIN? A sponsor of a sponsored direct reporting NFFE is a sponsoring entity (see Treas. Reg. § 1.1471-1T(b)(124)) and  should complete an online registration (or, alternatively, submit a paper Form 8957) as a sponsoring entity, based on the instructions provided in this FAQ.  A sponsoring entity need only complete one registration to act as the sponsor for both sponsored FFIs and sponsored direct reporting NFFEs.  For registrations occurring in years after 2014, it is anticipated that both the online registration user guide and the Instructions for Form 8957 will be updated to incorporate this information, including by incorporating the definition of sponsoring entity provided in Treas. Reg. § 1.1471-1T(b)(124).

In general, for purposes of having a sponsor register a sponsored direct reporting NFFE, substitute the words “sponsor of a direct reporting NFFE” for the words “sponsoring entity” wherever they appear in the online registration user guide (or in the Instructions for Form 8957).  Unless specific instructions for a registration question are described here in this FAQ, please use the generally applicable instructions provided in the online registration user guide (or in the Instructions for Form 8957).

Part 1

Question 1 – – Select “Sponsoring Entity”.

Question 4 – – Select “None of the above”.

Question 6 – – Select “Not applicable”.

Question 7 – – Select “No”. (If using the portal online, selecting “no” will automatically skip Questions 8 and 9)

Question 8 – – Skip this question (which relates to branches)

Question 9 – – Skip all parts (a) through (c) of this question (which relate to branches).

Question 10 – – Enter the information of the individual who will be responsible for ensuring that the direct reporting NFFE meets its FATCA reporting obligations and who will act as a point of contact with the IRS in connection with its obligations as a sponsoring entity.

Part 2 – – It is not necessary for a sponsor of a direct reporting NFFE to complete this section.  (If using the portal online, selecting Sponsoring Entity in question 1 will automatically skip Part 2.)

Part 3 – – It is not necessary for a sponsor of a direct reporting NFFE to complete this section. (If using the portal online, selecting “Not Applicable” in question 6 will automatically skip Part 3.)

Part 4 – – The individual who completes this part must have the authority to provide the certification.

_Registration Update
Q18. Why has my registration been put into “Registration Incomplete”? What can I do? If your registration has been put into Registration Incomplete status, it is because the IRS has identified an issue with your registration.  If you are Registration Incomplete status, please review your registration for any of the following errors and update it accordingly:

  1. The FFI has identified itself as a Qualified Intermediary with a QI-EIN of which the IRS has no record.  (If you have QI, WP or WT Agreement signed with the IRS, please contact the Financial Intermediaries Team for further assistance.)
  2. The RO has been identified with initials only and no specific name has been provided.
  3. The RO does not appear to be a natural person.
  4. Notice 2013-43 stated that any registrations submitted prior to  January 1, 2014 would be taken out of submit and put into Registration Incomplete status. Thus, if your registration was submitted prior to  January 1, 2014, you must  re-submit your registration assuming that none of the other abovementioned reasons (1-3) are an issue with the FFI’s registration.

After you have updated your registration, you must resubmit in order for your registration to be processed.

 

Additional FAQs are available for the FATCA Registration System and the FATCA FFI List.

book coverPractical Compliance Aspects of Exchange of Information, FATCA and GATCA

For in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters 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. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

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