Implementation of the U.S. FATCA regime proceeds on schedule, with no changes to the effective dates, and none now expected. Thus, withholding will begin on July 1 on U.S.-source payments (including interest on U.S. obligations and dividends from U.S. corporations) to entities subject to FATCA—so-called foreign financial institutions ("FFIs")—that are not FATCA compliant. Due to the intergovernmental agreement ("IGA") with France, FFIs that are tax resident in France (with respect to their French branches) and branches of other FFIs that are French resident are not subject to the July 1 date. Nor are FFIs resident in other jurisdictions that have an IGA (or have "substantially" negotiated one under the rules discussed below). But other, "non-IGA" FFIs should (unless an exception applies) register with the U.S. Internal Revenue Service ("IRS") before July 1 and enter into an agreement to perform a "due diligence" search of their accounts and report information to the IRS annually with respect to account holders who are U.S. persons and meet certain other requirements.
For FFIs benefiting from IGAs under the above rules, withholding is delayed until January 1, 2015 and will never apply if the FFI is FATCA compliant or is excepted under the IGA. To avoid withholding, such "IGA FFIs" must generally register with the IRS by January 1, 2015 and obtain a global intermediary identification number ("GIIN") to give to U.S. withholding agents. Beginning next year, such FFIs must comply with the IGA's reporting requirements (although again exceptions may apply), which in the case of most IGAs (the so-called Model 1 IGAs, including France) will be to their own national tax authorities.
We are still waiting for the final implementation rules in France and most other jurisdictions, which will govern the information reporting process.
To summarize the most important developments so far this year, temporary regulations issued in February 2014 confirmed the earlier extension of effective dates by IRS action., i.e., to delay withholding to July 1, 2014 for non-IGA FFIs and January 1, 2015 for IGA FFIs, as above.
Additionally, June 30, 2014 was set as the last date on which debt instruments and other obligations can be issued (or subject to a binding agreement) and still be exempt from the FATCA withholding rules (the so-called "grandfather" date). The regulations clarified many technical points and also contained two important liberalizations of the rules. The regulatory exception for so-called "limited life debt investment entities" was made permanent. (Earlier, it provided relief only until 2017). This exception is targeted at funds investing primarily in debt instruments (e.g., CLOs and CDOs), and it was liberalized in a way that will allow many more such funds to qualify. (The most important changes here were the adoption of January 17, 2013 as the date the fund must have been in existence and dropping the requirement that the fund's organizational documents must not permit amendments without agreement of all of the fund's investors.) These changes are important also for IGA FFIs because many IGAs, including the French IGA, adopt by reference the exceptions in the U.S. regulations.
The February 2014 regulations also delay FATCA withholding on payments on instruments held as collateral until 2017. This benefit applies only if the amount of collateral held in the arrangement is "commercially reasonable."
In a recent announcement, the U.S. Treasury greatly expanded the number of IGAs that allow FFIs to qualify in their jurisdictions for exemption from withholding in 2014 (i.e., until January 1, 2015 if required under the above rules). Now, IGAs can qualify for the 2014 exemption if an agreement "in substance" has been reached by July 1, even though it has not yet been signed (although the jurisdiction must consent to be included on the IRS list). Such IGAs will be considered in effect through December 31, 2014; if the IGA with any of these jurisdictions is not actually finalized in 2014, FFIs in the jurisdiction may be subject to U.S. withholding beginning on January 1, 2015 under the U.S. statutory rules (described above). The Treasury's list of IGAs, both those that are final and those "in substance," can be found here.