As expected, on August 19, 2013 the Internal Revenue Service (IRS) launched the web-based, registration system for financial institutions that need to register with the IRS under the Foreign Account Tax Compliance Act (FATCA). Twenty-four-hour access to the online registration system is on the FATCA page of irs.gov at http://www.irs.gov/Businesses/Corporations/Information-for-Foreign-Financial-Institutions.
FATCA subjects certain categories of payments made by any payors to (i) Foreign Financial Institutions (including most banks, funds, investment entities, depositories and insurance companies, collectively referred to as FFIs) and (ii) certain non-financial foreign entities (including multinationals, partnerships and trusts, collectively referred to as NFFEs) to a 30 percent U.S. withholding tax unless the foreign recipient, and each member of its affiliated group, have agreed in advance to provide information to the IRS on their (direct and indirect) U.S. owners, creditors and investors.
Financial institutions that must register with the IRS to meet their FATCA obligations may begin the process as of today by creating an account and entering the required information. Financial institutions will also be able to provide required information for their branches of operation and other members of their expanded affiliate groups in which the financial institution is the lead organization. An FFI may also register on paper, but this is not recommended by the IRS.
The registration system will specifically enable the financial institutions to: (i) create new account/s; (ii) customize home pages to manage the account/s; (iii) designate points of contact to handle the registration; (iv) oversee affiliated members’ and/or branches’ information; and (v) receive automatic notifications of status changes.
In a press release, the IRS encouraged financial institutions to become familiar with the system, create their online accounts and begin submitting their information.
In terms of the timeline, the system will be open as of today, and the financial institutions can log in and begin entering the information. However, before January 1, 2014, such information will not be final and may be changed. Beginning January 1, 2014, financial institutions will be expected to finalize their information in the system and submit it as final. As registrations are finalized and approved in 2014, registering financial institutions will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN) from the IRS. The IRS will electronically post the first IRS Foreign Financial Institution List in June 2014, and will update the list monthly. To ensure inclusion in the June 2014 IRS FFI List, financial institutions will need to finalize their registrations in the system by April 25, 2014. This date is critical because FATCA withholding is scheduled to begin on July 1, 2014 with respect to U.S. source fixed or determinable annual or periodic income (FDAP payments, which generally includes interest, dividends, rents and other investment type payments). Thus, financial institutions have clear incentive to finish registration by April 25, 2014, to avoid the withholding.
FFIs may use their GIIN to identify that they are registered and approved to: (i) withholding agents; and (ii) the IRS. Importantly, withholding agents may rely on the IRS published list to verify an FFI’s GIIN and, therefore, not withhold on payments made to the FFI.
Nevertheless, the treatment of an FFI established in a jurisdiction with an intergovernmental agreement (IGA) treated as in effect may differ from the treatment under the FATCA Regulations. An FFI in such an IGA jurisdiction should refer to the applicable IGA. IGAs currently fall into two categories, Model 1 and Model 2, each of which contains different terms and requirements.
A Model 1 IGA is an agreement between the United States and a foreign government to implement FATCA through reporting by financial institutions to such foreign government, followed by automatic exchange of the reported information with the IRS. In contrast, a Model 2 IGA is an agreement between the United States and a foreign government to facilitate the implementation of FATCA through reporting by financial institutions directly to the IRS in accordance with the requirements of an FFI agreement, supplemented by the exchange of information between such foreign government and the IRS.
With respect to FATCA withholdable payments made prior to January 1, 2015, verification of a GIIN is not required with respect to payees that are from a jurisdiction that has signed a Model 1 IGA with the United States. As a result, FFIs from such a jurisdiction will have additional time beyond July 1, 2014 to register and obtain a GIIN in order to ensure that they are included on the IRS FFI list before January 1, 2015.
In conclusion, while there are several months to complete the registration process, it is highly recommended that FFIs begin the registration process as soon as possible, so that by early next year the process can be finalized and a GIIN issued.