IRS Postpones FATCA's January 1, 2014 Start Dates to July 1, 2014, and Clarifies Treatment of Pending Agreements
Recognizing the practical and logistical problems faced by US withholding agents and foreign financial institutions (“FFIs”), and the uncertainty faced by many FFIs and foreign governments about whether an intergovernmental agreement (“IGA”) will be in effect by January 1, 2014, US tax authorities on July 12, 2013, issued Notice 2013-43. Notice 2013-43 states that the US Treasury Department and US Interna Revenue Service (“IRS”) will postpone by six months, to July 1, 2014, the start of withholding required by the so-called Foreign Account Tax Compliance Act, or “FATCA,” and make corresponding adjustments to various other time frames provided in the final regulations. The Notice states that its goal is to allow for a more orderly implementation of FATCA. The Notice gives affected entities more time to adjust to FATCA; it generally does not, however, relax the long-term, substantive withholding and reporting obligations imposed by FATCA.
Pursuant to US Treasury Regulations published in January 2013, the withholding and reporting rules imposed by sections 1471-1474 of the US Internal Revenue Code, often referred to as the Foreign Account Tax Compliance Act, or FATCA, were generally phased in, with several key withholding and due diligence obligations beginning on January 1, 2014. In order for US withholding agents and FFIs to meet the January 1, 2014 start dates, US tax authorities expected the negotiation and implementation of bilateral IGAs to permit the exchange of the information required by FATCA, the promulgation of the necessary forms to comply with FATCA, and the creation of a FATCA registration website well before January 1, 2014. In particular, the preamble to the final FATCA regulations set forth an ambitious timeline of actions the IRS expected to take in 2013 and the steps it expected US withholding agents and FFIs to take in 2013. In addition to the timetable set forth in the final FATCA regulations, the IGAs that the US government has signed and published to date also require the US and foreign governments to take steps according to explicit or implicit timelines. The compressed timelines and the lack of final FATCA forms and registration materials have led to great concern among affected financial intermediaries and foreign persons that they will not be able to meet the requirements set forth in the FATCA regulations or to rely on signed, but not yet effective, IGAs. This would result in their being subject to withholding under FATCA despite their best efforts to comply with the FATCA reporting requirements.
Notice 2013-43, released by the IRS on July 12, 2013, recognizes that it is not possible to adhere to the timetable set forth in the preamble to the final FATCA regulations, or many of the January 1, 2014 deadlines set forth in the final FATCA regulations, and therefore delays the start date of many of the acts required by FATCA in 2013 and early 2014. The Notice explicitly states that it does not affect deadlines for post-2014 years (i.e., the Notice does not affect the timing set forth in the final FATCA regulations for withholding on gross proceeds, passthru payments, and payments of certain US-source payments with respect to offshore obligations by persons not acting in an intermediary capacity).
Under the revised timeline announced in Notice 2013-43:
Timeline for Withholding
- The January 1, 2014 beginning date for withholding is delayed until July 1, 2014.
- The definition of “grandfathered obligation” will be revised to include obligations outstanding on July 1, 2014 (with conforming rules for associated collateral)
Timeline for Implementing New Account Opening Procedures and the Definition of Preexisting Obligations
- For US withholding agents and participating FFIs, the January 1, 2014 deadline for implementing account opening procedures is extended to July 1, 2014, with a similar delay in the determination as to what constitutes a new account.
- The delay will apply whether the account opening procedures are covered by the final FATCA regulations or an IGA.
Transition Rules for Completing Due Diligence on Preexisting Obligations
- Deadlines imposed by the final FATCA regulations for completing due diligence on preexisting obligations are postponed for six months (i.e., generally to June 30, 2014).
- Conforming changes would be made to the regulatory and IGA rules for determining account balance or value.
- In one of the few 1-year (rather than 6-month) delays, the obligation to monitor the account balance or value of certain preexisting accounts (i.e., those with a balance or value that was initially $1,000,000 or below) to determine whether enhanced review is required is deferred by one year.
Due Date for First Report of a Participating FFI with respect to US Accounts
- As a result of the postponement of several 2013 and 2014 deadlines, reporting for the 2013 calendar year is no longer feasible.
- Accordingly, participating FFIs, or reporting FIs under a Model 1 IGA, will not be required to report information on US accounts with respect to the 2013 calendar year. Rather, they will have to report by March 31, 2015, only with respect to the 2014 calendar year.
Timeline For FATCA Registration
- The FATCA registration website is projected to be accessible to financial institutions on August 19, 2013.
- Other key dates for registration will be extended by six months. In particular, the rules for global intermediary identification numbers (“GIINs”) are relaxed and delayed.
- The IRS will electronically post the first IRS FFI List by June 2, 2014, and will update the list on a monthly basis thereafter.
- To ensure inclusion in the June 2014 IRS FFI List, an FFI must finalize its registration by April 25, 2014.
Treatment of Expiring Documentation under Other US Withholding Tax Rules
- Withholding certificates and documentary evidence, e.g., IRS Form W-8BEN and other Forms W-8, that would otherwise expire on December 31, 2013, will expire instead on June 30, 2014, unless a change in circumstances occurs that would otherwise render the withholding certificate or documentary evidence incorrect or unreliable.
Automatic Extension of Expiring QI, WP, and WT Agreements
- All qualified intermediary (“QI”), withholding foreign partnership (“WP”), or withholding foreign trust (“WT”) agreements that would otherwise expire on December 31, 2013, will be automatically extended until June 30, 2014.
Foreign-Targeted Registered Obligation Rules
- The transition rule in Notice 2012-20, applicable to foreign-targeted registered obligations, will be extended to obligations issued in registered form after March 18, 2012 and before July 1, 2014.
Treatment of Financial Institutions Operating in Jurisdictions That Have Signed an IGA
- A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the US Treasury Department website (http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx) as a jurisdiction that is treated as having an IGA in effect. This list generally will include jurisdictions that have signed but not yet brought into force an IGA.
- A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or a participating FFI (which would include all reporting Model 2 FFIs), as applicable.
Updates to Existing IGAs
Also on July 12, 2013, the US Treasury Department revised its Model IGAs to reflect the relaxed timeline set forth in Notice 2013-43. Each IGA the United States has signed and made public so far has a “most-favored-nation” provision that generally provides that, if the United States agrees at a later date to an IGA that has better terms than the IGA just signed, the IGA just signed will be automatically updated to reflect those better terms. Accordingly, the previously signed IGAs with the United Kingdom, Denmark, Mexico, Ireland, Norway, Spain, Germany, Switzerland, and Japan will receive the benefits of Notice 2013-43 as soon as the United States signs a new IGA (of the same type as the existing IGA) that incorporates the terms of the new model IGAs.