William Byrnes' Tax, Wealth, and Risk Intelligence

The silence is deafening.  In the past two weeks, only two additional IGAs have been added to the list (UAE and Barbados) so that as of Monday June 2, 2014, only 68 FATCA IGAs have been signed or treated as if signed.  These 68 include 28 signed Model 1s with another 33 treated as if signed, and 5 signed Model 2s with 2 treated as if signed.

FFIs in the remaining countries and jurisdictions rush to register by tomorrow, June 3^rd, with the FATCA portal that they may be included on the GIIN List by the July 1^st start of FATCA withholding.  Meanwhile, US withholding agents gear up to begin FATCA withholding for payments from July 1^st.

What if these Non-IGA countries agree an IGA after July 1?

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on today’s June 2nd GIIN list of participating foreign financial institutions (“PFFI”) passed May 5th. 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 remaining countries and jurisdictions that do not have an IGA register for a GIIN?  There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration.  It is possible that 80,000 entities that qualify as FFIs still need to register or complete registration for a GIIN.  The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks.

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.

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).

Note that FATCA withholding does not apply to all FATCA withholdable payments immediately on July 1st.  FATCA has a phase-in period for withholding on certain types of payments, see Ch 13: Withholdable Payments. 

Jurisdictions that have signed agreements:

Model 1 IGA – 28

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. Spain (5-14-2013)
28. 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 – 33

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. Singapore (5-5-2014)
27. Slovak Republic (4-11-2014)
28. Slovenia (4-2-2014)
29. South Africa (4-2-2014)
30. South Korea (4-2-2014)
31. Sweden (4-24-2014)
32. Turks and Caicos Islands (5-12-2014)
33. United Arab Emirates (5-23-2014) <— new IGA agreed

Model 2 IGA – 2

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