As noted in our previous post, the recently signed Inter-Governmental Agreementbetween the Canada and the U.S. relating to FATCA (the IGA) will modify the FATCA reporting obligations for Canadian financial institutions.
Under the IGA, the term "Financial Institution" (or “FI”) includes custodial institutions, depository institutions, investment entities and specified insurance companies.
For this purpose, the term “Custodial Institution” is generally defined as any Entity that holds, as a substantial portion of its business, financial assets for the account of others; the term “Depository Institution” is generally defined as any Entity that accepts deposits in the ordinary course of a banking or similar business; the term "Investment Entity", is generally defined as any entity that conducts as a business (or managed by an entity that conducts as a business) any of the following activities or operations for or on behalf of a customer: (i) trading in money market instruments, foreign exchange, exchange, interest rate and index instruments, transferable securities, or commodity futures trading; (ii) individual and collective portfolio management; or (iii) otherwise investing, administering, or managing funds or money on behalf of other persons; and the term “Specified Insurance Company” is generally defined as any Entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.
Specifically, while Canadian FIs will not be required to enter into an agreement with the Internal Revenue Service, if not otherwise exempt from FATCA under the IGA (e.g., certain pension and retirement funds) , a non-exempt Canadian FIs will be required to register on the IRS FATCA portal and receive a Global Intermediary Identification Number (GIIN) in order to be FATCA-compliant.
The recommended deadline to register on the IRS online portal and obtain a GIIN is on or before April 25, 2014. Canadian FIs that do not register with the IRS by April 25, 2014 can find themselves subject to the 30% FATCA withholding tax on US source income - such as dividends, interest - paid starting July 1, 2014. This is because US withholding agents will determine a Canadian FI’s status as being non-compliant with FATCA by reviewing the IRS published list, (i.e., the IRS will publish its first list of registered foreign FIs by June 2, 2014 and will update this list on a monthly basis thereafter), and should a Canadian FI not be reflected on the IRS published list, the FATCA withholding tax will be applied.