William Byrnes' Tax, Wealth, and Risk Intelligence

This is a follow up on my article Friday afternoon of May 2: Treasury provides temporary relief for five areas of FATCA compliance (Notice 2014-33) https://profwilliambyrnes.com/2014/05/02/treasury-provides-temporary-relief-for-five-areas-of-fatca-compliance-notice-2014-33-of-may-2/

What has Treasury done May 2? 

Treasury released Notice 2014-33.  Notice 2014-33 provides aspects of temporary relief for five areas of FATCA compliance:

1. 6 month extension (from July 1, 2014 until December 31, 2014) for characterizing as “pre-existing” the obligations (including accounts) held by an entity

2. soft-enforcement transition period 2014 and 2015 for good-faith actors

3. modification to the “standards of knowledge” for withholding agents for accounts documented before July 1, 2014

4. revision to the definition of a “reasonable explanation” for determination of foreign status

5. additional guidance for an FFI (or a branch of an FFI, including a disregarded entity owned by an FFI) that is a member of an expanded affiliated group of FFIs to be treated as a limited FFI or limited branch, including the requirement for a limited FFI to register on the FATCA registration website.

As the relief is limited to entity accounts, an FFI still must have procedures in place by July 1, 2014 to document new individual account holders and to apply FATCA withholding on withholdable payments to individual account holders where required.

Why is May 5th still an Important FATCA deadline? 

Treasury announced on April 2 (see my previous article explaining impact of announcement)  a 10-day extension from the original April 25th deadline  for foreign financial institutions (FFIs) to register with the FATCA Portal IRS to obtain a GIIN and to be included on the IRS’ June 2 list of participating FFIs (PFFI).  That extension thus ends today, on May 5, in a couple hours.

Some types of payments (there is a phase in period for applicability to all types of payments, see Ch 13: Withholdable Payments) made by US withholding agents as of July 1 will attract the 30% FATCA withholding.

Depending on who you ask, industry pundits quote a range of 20,000 to 100,000 FFIs that still need to register for a GIIN as of today.  I just do not know myself, but when I think of all the little trust companies, money managers, and small financial institutions in countries without an IGA, it seems plausible the worldwide number to still register is higher than 20,000.

Is the May 5th Deadline a Hard Deadline?

Yes, No, and Maybe.  Three significant caveats as to this May 5 deadline.

No: Firstly, FFIs in IGA jurisdictions have an extension to register with the IRS – until December 22, 2014 to obtain their GIINs.  To date, 60 IGAs are considered to be in effect (see my article last week – but Kuwait, Peru, Panama were all agreed as of May 1, and thus just uploaded to the list).  60 out of say 200 countries and jurisdictions still leaves 140 IGAs to go – and thus a May 5th deadline for the majority of countries’ and jurisdictions’ FFIs.

Yes: Secondly, Treasury has stated that every 30 days it will reissue its PFFI) list.  So at least by intention, on Tuesday July 1 the IRS should release another list of PFFIs that do not require withholding.  Moreover, if an FFI on May 6th registers, Treasury may still include it on the June 2 PFFI GIIN list – just no promises from Treasury.

Maybe: Finally, 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 May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.”)*  [* Thank you to reader Vesselin (Vesco) Tzotchev, JD, LLM for spotting this note. He has practiced U.S. taxation for more than 15 years in industry, with Big 4 and boutique accounting firms in California, Ontario and Switzerland, and currently resides in Zurich, Switzerland.]

So it is possible that on July 1st an FFI is considered non-participating (NPFFI) for purposes of withholding, but on July 2nd its country agrees a IGA with Treasury and the NPFFI goes back to simple FFI non-withholding for FATCA, at least until Dec 22.

What Deadlines has Treasury NOT moved? 

For “individual” held accounts, Treasury has neither provided an extension to the FATCA compliance requirements, nor from withholding as of July 1st.  Thus, from July 1 these accounts must be characterized as “new” accounts for FATCA diligence procedures to determine whether the beneficial owner is a US person.

For accounts of ‘entities’ , while an FFI may still characterize accounts opened until December 31 as “pre-existing” accounts, Treasury did not mention extending the deadlines applicable for FATCA diligence procedures to determine whether the entity’s beneficial owner is a US person.

The pre-existing account due diligence analysis remains with three deadlines:

1. December 31, 2014 for prima facie FFI account holders,
2. June 30, 2015 for high value accounts, and
3. June 30, 2016 for all remaining accounts, such as “pre-existing” entity accounts).

Did Treasury provide relief to the “standards of knowledge” compliance requirement? 

Again – Yes and No.

Yes, Treasury has relieved the application of the additional US indicia search for US telephone number and for US place of birth for a direct account holder already documented as “foreign” beneficially owned prior by June 30, 2014 because some institutions have already undertaken the due diligence procedures for determining which accounts are beneficially foreign owned and which are owned by US persons.  It would be egregious to force these institutions to re-do all their foreign account determinations, when they were early adopter actors. 

But No – for “new” account from July 1st, and for “pre-existing” account that have a “change in circumstances”, the new standard of knowledge indicia must be applied. 

What About the Deadlines of Annex I of the Current 60 IGAs in Effect?

Going forward, Treasury will amend Annex I to include the above six month extension and relief of compliance requirements for standard of knowledge / reasonable explanation of non-US person, foreign status.

The current 60 IGA countries and jurisdictions may, and presumably will, adopt the Annex 1 amendments by exercising the most-favored nation provision of the IGA.

The LexisNexis® Guide to FATCA Compliance (2^nd 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 requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/