FATCA, enacted as part of an effort to combat tax evasion, generally imposes new U.S. information and reporting requirements on “foreign financial institutions” (“FFIs”) that maintain U.S. accounts. FATCA also imposes increased disclosure obligations on certain “nonfinancial foreign entities” (“NFFEs”). FATCA generally requires FFIs (but not NFFEs) to enter into an agreement with the IRS (an “FFI Agreement”) (i) to comply with verification, due diligence, and information reporting with respect to its U.S. accounts and (ii) to withhold 30% on certain payments (referred to as “passthru payments”) attributable to U.S. assets that are made to holders that do not provide the required information to the FFI or to FFIs that have not themselves entered into an FFI Agreement. FFIs that enter into an FFI Agreement will be considered “participating FFIs” (“PFFIs”). FFIs that have not entered into such an agreement (“non-PFFIs”) will be subject to a 30% withholding tax on certain U.S.-source income and gains, as well as on passthru payments. NFFEs that fail to comply with their reporting obligations will be subject to a 30% withholding tax on certain U.S.-source income and gains. 

On January 17, 2013, Treasury and the IRS published final regulations providing for a phased implementation of the requirements of FATCA, beginning on January 1, 2014, and continuing through 2017.1 On July 12, 2013, the IRS released Notice 2013-43, 2013-31 I.R.B., which modifies several aspects of that timeline, including:

  • Timeline for Withholding and the Definition of Grandfathered Obligations:Withholding agents generally will be required to begin withholding on withholdable payments made after June 30, 2014, to payees that are FFIs or NFFEs with respect to obligations that are not grandfathered obligations, unless the payments can be reliably associated with documentation on which the withholding agent can rely to treat the payments as exempt from withholding. In addition, the definition of grandfathered obligation will be revised to include obligations (and associated collateral) outstanding on July 1, 2014. Notice 2013-43 does not affect the timing provided in the final regulations for withholding on gross proceeds, passthru payments, and payments of U.S.-source FDAP with respect to offshore obligations by persons not acting in an intermediary capacity. 
     
  • Timeline for Implementing New Account Opening Procedures and the Definition of Preexisting Obligations: Withholding agents generally will be required to implement new account opening procedures by July 1, 2014, or, in the case of a PFFI, by the later of July 1, 2014 or the effective date of its FFI agreement. Accordingly, the definition of the term “ preexisting obligation” will be modified to mean: 
     
    • With respect to a withholding agent other than a PFFI or a registered deemed-compliant FFI: any account, instrument, or contract maintained, executed, or issued by the withholding agent that is outstanding on June 30, 2014; 
       
    • With respect to a PFFI: any account, instrument, or contract maintained, executed, or issued by the PFFI that is outstanding on the effective date of the FFI agreement; and 
       
    • With respect to a registered deemed-compliant FFI: any account, instrument, or contract maintained, executed, or issued by the FFI prior to the later of July 1, 2014, or the date on which the FFI registers as a deemed-compliant FFI and receives a “global intermediary identification number” (“GIIN”). 
       
  • Transition Rules for Completing Due Diligence on Preexisting Obligations: The FFI Agreement of a PFFI that registers and receives a GIIN from the IRS on or before June 30, 2014, will have an effective date of June 30, 2014, effectively resulting in a six-month postponement of the deadlines for completing due diligence on preexisting obligations. For withholding agents other than PFFIs, the deadlines for completing due diligence on preexisting obligations will be postponed for six months. 
     
  • Due Date for First Report of a PFFI with Respect to U.S. Accounts: The final regulations provided that a PFFI would be required to file information reports on its U.S. accounts with respect to the 2013 and 2014 calendar years no later than March 31, 2015. Treasury and the IRS intend to modify these rules to require reporting on March 31, 2015, with respect to the 2014 calendar year only (for U.S. accounts identified by December 31, 2014). 
     
  • Timeline for Registration: The FATCA registration website is projected to be accessible to financial institutions on August 19, 2013. However, the IRS will not issue any GIINs in 2013. Instead it expects to begin issuing GIINs as registrations are finalized in 2014. 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, FFIs would need to finalize their registration by April 25, 2014. 
     
  • Treatment of Expiring Chapter 3 Documentation: For purposes of Chapter 3 withholding, withholding certificates and documentary evidence generally expire on the last day of the third calendar year following the year in which the withholding certificate is signed or the documentary evidence is provided to the withholding agent. Withholding certificates and documentary evidence 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 QI, WP, or WT agreements that would otherwise expire on December 31, 2013, will be automatically extended until June 30, 2014.

In addition to modifying the timeline for FATCA implementation, Notice 2013-43 also provides guidance concerning the treatment of FFIs located in jurisdictions that have signed intergovernmental agreements (“IGAs”) for the implementation of FATCA, but have not yet brought those IGAs into force. Specifically, a jurisdiction will be treated as having an IGA in effect for FATCA purposes if it is listed on a designated Treasury website as such. Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet implemented IGAs. 

Treasury and the IRS anticipate amending the final regulations to adopt the rules outlined in Notice 2013-43, but taxpayers may rely on the provisions of the notice until the issuance of those amendments.