In the early hours of the morning of 27 June 2014 (Beijing time), the People’s Republic of China (“PRC”) is officially included onto the most recently updated list of “jurisdictions that are treated as having an inter-governmental agreement (‘IGA’) in effect” by United States Department of the Treasury (“US Treasury”), indicating that PRC and US are to execute a Model 1 IGA (“PRC IGA”) in relation to the implementation of the Foreign Account Tax Compliance Act (“FATCA”) in the PRC, and that both countries have reached agreements in substance.
This means, once the PRC IGA is executed and comes into effect, Foreign Financial Institutions (“FFIs”) in PRC (“PRC FFIs”) will only be required to report information in relation to reportable US accounts to the PRC competent authority (instead of reporting directly to the Internal Revenue Service (“IRS”)), and information will be exchanged between the competent authorities of PRC and US.
Regardless of whether the PRC IGA will be officially executed on or before 1 July 2014, prior to 1 January 2015, when making payment to a PRC FFI, US Financial Institutions and Participating FFIs will not be required to verify the Global Intermediary Identification Number (“GIIN”), nor make any FATCA withholding. This will also extend the deadline for PRC FFIs to submit FATCA registration.
Accordingly, certain key dates are further changed as follows:
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In the meantime, according to the updated IGA Model 1 template dated 6 June 2014 published by US Treasury recently, partner jurisdiction may adopt transitional arrangement on due diligence: e.g., partner jurisdiction may allow onshore FFIs, to some extent, to conduct due diligence by making reference to the procedures applicable to pre-existing entity accounts for new entity accounts opened during the transition period.
Since it is fairly certain that the PRC will eventually implement FATCA by executing a Model 1 IGA with the US, PRC FFIs need to prepare for FATCA compliance within the timeframe based on the key dates, for example:
- 判断本机构、集团内各实体以及特定跨境交易是否受到FATCA影响；/ determining whether the institution, each entity within the group and each specific transaction is affected by FATCA;
- 制定合规方案，准备向美国国税局提交注册；/ crafting compliance plans and getting prepared to submit FATCA registration to IRS;
- 建立FATCA合规管理规程，开展内部培训；/ establishing FATCA compliance and administration rules and procedures and launching internal training;
- 根据实际业务情况，制定并实施尽职调查制度，实时进行窗口业务指导；/ drafting due diligence policies and procedures in line with current business practices, implementing such policies and procedures and providing on-site guidance;
- 规范标准业务文本，获取相应信息及授权；以及/ revising the standard documentations in order to obtain relevant information and authorization; and
- 修改含有涉美国因素的跨境交易文本。/ amending documents for US-related cross-border transactions.
In addition, the Hong Kong Special Administrative Region (“HK”) as an independent jurisdiction has also reached a Model 2 IGA in relation to FATCA implementation in substance with the US in early May. Under the Model 2 IGA, FFIs in HK (“HK FFIs”) are subject to their own discretion to decide, based on their actual situation, whether or not to cooperate with IRS regarding FATCA. HK FFIs who decide to participate will be required to report information in relation to reportable US account directly to the IRS.