After a great deal of anticipation FATCA officially took effect on the 1st July 2014. As promised, the IRS released further guidance in advance of the program opening. A few of the key pieces of guidance are discussed below. As FATCA implementation begins, institutions will be doing their best to meet their new obligations. The IRS has indicated that it will be somewhat flexible as the program gets underway.
Transition Period and Six Month Extension - On 2nd May 2014 the IRS released Notice 2014-33, which stated that 2014 and 2015 will be treated as a transition period for FATCA purposes. Specifically, the IRS states that it will not take enforcement action against institutions that are making “good faith efforts” to comply with their FATCA obligations. Additionally, the Notice provides a six month extension for FFIs regarding entity accounts. Entity accounts opened before 1st January 2015, may be treated as existing obligations and foreign financial institutions (FFIs) have until that date to implement procedures for them.
Revised FFI Agreement and QI Agreement - The IRS also updated the FFI Agreement and Qualified Intermediary (QI) Agreement prior to FATCA coming into effect. Both agreements were updated to coordinate with the revised FATCA regulations and coordinating regulations under Chapters 3 and 61, as well as to make some substantive changes. The FFI Agreement also provides additional guidance for reporting financial institutions in jurisdictions that have a Model 2 IGA in place. The revised QI Agreement was released on 27th June 2014, only a few days prior to the 30th June 2014 expiration date for all existing QI Agreements. This did not provide much time for institutions to review the agreements thoroughly before they were to go into effect on 1st July 2014. The IRS has stated that it intends for the QI Agreement to be layered on top of the FFI Agreement.
Revised Forms and Instructions - The IRS has released instructions for numerous revised and new forms relating to FATCA, including Form 8966, “FATCA Report,” and Form W-8BEN-E, “Certificate of Status of Beneficial Owner for United States Tax.” The instructions for Form W-8-BEN-E were highly anticipated and helped to clarify some outstanding questions, including nonfinancial foreign entities (NFFEs). The instructions also clarify what needs to be provided during the transition period, in particular stating that FATCA certifications do not need to be provided until the transition period ends.
Institutions have not been given much time to digest recent FATCA guidance, forms and agreements, but the transition period and other relief indicates that the IRS intends to offer some flexibility. Despite such relief, institutions must have their policies and procedures in place. Attention will be focused on how additional details are worked out as FATCA implementation proceeds.