William Byrnes' Tax, Wealth, and Risk Intelligence

As mentioned in the June 8th article about the passing of the July GIIN List inclusion deadline, the estimate of states and jurisdictions that probably could benefit from an IGA (Model 2 for jurisdictions without populations) is the full number of countries and non-US Dependencies recognized by the US, which is 250, to accommodate the territories like British Indian Ocean Territory and French Southern Territories from which FFIs registered (to my, and many others, surprise).  Therefore, with 78 IGAs announced thus far, as of Friday June 13th, 172 countries and jurisdictions are without IGAs that could benefit from one – because withholding on their non-(FATCA) compliant financial institutions will begin July 1st.

The current 78 recognized IGAs as of June 12 include 31 signed Model 1s with another 39 treated as if signed, and 5 signed Model 2s with 3 treated as if signed.

Which firms are covered by the FATCA term “Financial Institutions”?

The definition of a financial institution in the final regulations includes any entity that is primarily engaged in the business of investing, reinvesting, or trading in securities, commodities, partnership interests, etc. For this purpose, an entity is primarily engaged in such activities if its gross income attributable to such activities equals or exceeds 50 percent during the relevant testing period.

Thus, foreign funds, collective investment vehicles, and passive investment corporations are considered financial institutions (FFIs) and not passive nonfinancial foreign entities (NFFEs), which is relevant in terms of compliance requirements.  Fund managers, as well as the funds that they manage, are likely considered FFIs under this definition.  However, passive investment corporations may not be captured by this definition because they do not generally engage in any of the activities for customers, nor are they generally managed by an entity that does.

Form 8957 FFI Registration

The instructions to Form 8957 indicate that the following FFIs and branches are eligible to register (on behalf of themselves and their branches) to obtain a GIIN (unless the entity is a Limited FFI or Limited Branch):

1. Entities not covered by an IGA that wish to enter into an FFI agreement and become a PFFI;
2. Reporting Model 1 FFIs (including branches of U.S. financial institutions that will be treated as such), registering as an RDCFFI;
3. Reporting Model 2 FFIs that agree to comply with the terms of an FFI agreement, as modified under the applicable IGA;
4. Limited FFIs or Limited Branches that confirm that they will comply with applicable terms;
5. Sponsoring FFIs that agree to perform due diligence, reporting, and withholding on behalf of one or more Sponsored FFIs;
6. QIs (or Withholding Partnerships and Withholding Trusts) wishing to renew their QI, WP, or WT Agreements; and
7. Lead FIs/Compliance FIs wishing to identify themselves as such for the purposes of registering members and affiliates.

Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W-8BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

What is a “Compliance FI”? 

A Compliance FI means a PFFI, Reporting FI under a Model 1 or 2 IGA, or USFI that agrees to establish and maintain a consolidated compliance program and to perform a consolidated periodic review on behalf of one or more Member FIs that are part of its EAG (the compliance group).  A Compliance FI must meet the requirements to register as a Lead FI, and as part of that registration, it must identify each Member FI that is included in its compliance group.  A Compliance FI must also have the authority to terminate the FATCA status of each Member FI within its compliance group.

What is an Expanded Affiliated Group (EAG)? 

An Expanded Affiliated Group of FFIs (EAG) means one or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if the common parent owns directly stock in at least one of the other includible corporations totaling more than 50 percent of the total voting power of the stock of such corporation, and with a value equal to more than 50 percent of the total value of the stock of such corporation, and if stock meeting these vote and value requirements in each of the includible corporations (except the common parent) is owned directly by one or more of the other includible corporations.  A partnership or any entity other than a corporation shall be treated as a member of EAG if such entity is controlled by members of such EAG.

Must Each Member of an EAG separately Register?

In general, all FFIs, other than exempt beneficial owners or certified deemed-compliant FFIs, that are part of the same EAG must be registered. For purposes of registration, an EAG may have more than one Lead FI and may organize itself for purposes of registration into subgroups under different Lead FIs.

For example, an EAG of 10 FFIs may decide to select two different Lead FIs, Lead FI 1 and Lead FI 2. Lead FI 1 can carry out FATCA registration on behalf of four of its Member FIs and Lead FI 2 can carry out FACTA registration on behalf of four of its other Member FIs.  All 10 FFIs within the same EAG will be registered, even though they are registered under two different Lead FIs.

If an EAG has in place a consolidated compliance program, then Member FIs that elect to participate in the same consolidated compliance program should be registered as Member FIs by the Lead FI that is acting as the Compliance FI for that compliance group.

What is a Sponsored FFI?

A sponsored FFI means an investment entity or an FFI that is a controlled foreign corporation (CFC) having a Sponsoring Entity that will perform the due diligence, withholding, and reporting obligations on its behalf.  An FFI that is a Sponsored FFI will be registered by its Sponsoring Entity.

Must an Registered FFI that also acts as a Sponsoring Entity Register a Second Time?

Yes.  An FFI that will also act as a Sponsoring Entity for one or more Sponsored Entities is required to submit a second 8957 registration form to act as a Sponsoring Entity.  The Sponsoring Entity will receive a separate Sponsoring Entity GIIN and should only use that GIIN when it is fulfilling its obligations as a Sponsoring Entity.

Model 1 IGA – 31 (followed by number of registered FFIs)

1. Australia (4-28-2014): 1,864
2. Belgium (4-23-2014): 249
3. Canada (2-5-2014): 2,264
4. Cayman Islands (11-29-2013): 14,836
5. Costa Rica (11-26-2013): 122
6. Denmark (11-19-2012): 186
7. Estonia (4-11-2014): 26
8. Finland (3-5-2014): 466
9. France (11-14-2013): 2,290
10. Germany (5-31-2013): 2,554
11. Gibraltar (5-8-2014): 96
12. Guernsey (12-13-2013): 2,395
13. Hungary (2-4-2014): 101
14. Honduras (3-31-2014): 47
15. Ireland (1-23-2013): 1,756
16. Isle of Man (12-13-2013): 312
17. Italy (1-10-2014): 456
18. Jamaica (5-1-2014): 41
19. Jersey (12-13-2013): 1,618
20. Liechtenstein (5-19-2014): 239
21. Luxembourg (3-28-2014): 3,560
22. Malta (12-16-2013): 235
23. Mauritius (12-27-2013): 727
24. Mexico (4-9-2014): 418
25. Netherlands (12-18-2013): 2,053
26. New Zealand (6-12-2014) 334 < – moved from below list
27. Norway (4-15-2013): 312
28. Slovenia (6-2-2014): 20
29. South Africa (6-9-2014): 317  < – moved from below list
30. Spain (5-14-2013): 1,187
31. United Kingdom (9-12-2012): 6,263

Model 2 IGA – 5

1. Austria (4-29-2014): 2,978
2. Bermuda (12-19-2013): 1,242
3. Chile (3-5-2014): 324
4. Japan (6-11-2013): 3,251
5. Switzerland (2-14-2013): 4,040

Jurisdictions that have reached agreements in substance:

Model 1 IGA – 39 (followed by number of registered FFIs)

1. Antigua and Barbuda (6-3-2014): 35 < – new entry
2. Azerbaijan (5-16-2014): 16
3. Bahamas (4-17-2014): 610
4. Barbados (5-27-2014): 123
5. Belarus (6-6-2014): 64 < – new entry
6. Brazil (4-2-2014): 2,258
7. British Virgin Islands (4-2-2014): 1,837
8. Bulgaria (4-23-2014): 72
9. Colombia (4-23-2014): 172
10. Croatia (4-2-2014): 50
11. Curaçao (4-30-2014): 173
12. Czech Republic (4-2-2014): 92
13. Cyprus (4-22-2014): 279
14. Georgia (6-12-201): 24 < – new entry
15. India (4-11-2014): 246
16. Indonesia (5-4-2014): 307
17. Israel (4-28-2014): 321
18. Kosovo (4-2-2014) – nil
19. Kuwait (5-1-2014): 77
20. Latvia (4-2-2014): 40
21. Lithuania (4-2-2014): 21
22. Panama (5-1-2014): 450
23. Peru (5-1-2014): 164
24. Poland (4-2-2014): 164
25. Portugal (4-2-2014): 255
26. Qatar (4-2-2014): 46
27. Romania (4-2-2014): 109
28. St. Kitts and Nevis (6-4-2014)
29. St. Lucia (6-12-2014): 60 < – new entry
30. St. Vincent and the Grenadines (6-2-2014): 104 < – new entry
31. Seychelles (5-28-2014): 37 < – new entry
32. Singapore (5-5-2014): 783
33. Slovak Republic (4-11-2014): 54
34. South Korea (4-2-2014): 396
35. Sweden (4-24-2014): 312
36. Turkey (6-3-2014): 65
37. Turkmenistan (6-3-2014): 1  < – new entry
38. Turks and Caicos Islands (5-12-2014): 27
39. United Arab Emirates (5-23-2014): 135

Model 2 IGA – 3

1. Armenia (5-8-2014): 27
2. Hong Kong (5-9-2014): 1.539
3. Paraguay (6-6-2014): 17  < – new entry

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