Global Tax Alert | 15 July 2013

Notice 2013-43 revises timelines and provides other guidance on FATCA provisions

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Executive summary

On 12 July 2013, Treasury and the IRS released Notice 2013-43, announcing a delay of key timelines for implementation of many of the Foreign Account Tax Compliance Act (FATCA) provisions affecting withholding agents, foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs). In addition, the Notice provides updates regarding the FATCA Portal, which will be used by FFIs to enter into FFI agreements and/or register for FATCA purposes and by all withholding agents to verify Global Intermediary Identification Numbers (GIINs) provided to them by FFIs. The Notice also addresses the treatment of FFIs located in jurisdictions that have signed intergovernmental agreements (IGAs) with the United States during the period when those agreements are not yet in force.

The Notice states that Treasury and the IRS intend to amend the FATCA regulations to adopt the rules set forth in the Notice and that prior to the issuance of these amendments, taxpayers may rely on the provisions of the Notice regarding expected amendments to the regulations. The provisions of the Notice will also apply to IGA jurisdictions, either via changes to the definitions in the Model IGAs and future IGAs negotiated based on those models or via the coordination provision (allowing FFIs to use regulatory definitions rather than IGA definitions) or the “most favored nation” provision (providing that a FATCA partner jurisdiction is entitled to the benefit of any more favorable provision agreed to in a comparable IGA).

Detailed discussion

The Notice provides that for withholding agents, registered deemed-compliant FFIs and FFIs whose FFI agreements become effective on 30 June 2014:

  • FATCA withholding on new accounts will become effective 1 July 2014 (delayed six months from 1 January 2014).
  • Changes to customer onboarding processes as required by FATCA must be in place by 1 July 2014 (delayed six months from 1 January 2014).
  • Accounts opened before 1 July 2014 will be considered to be “preexisting accounts” (extended six months from 1 January 2014).
  • Obligations issued before 1 July 2014 (and associated collateral) will be “grandfathered obligations” for FATCA purposes (extended six months from 1 January 2014).
  • The time period for performing due diligence on preexisting accounts generally is extended by six months. Therefore, for example, US withholding agents must review pre-existing accounts of prima facie FFIs by 31 December 2014. Likewise, a participating FFI (PFFI) must perform an enhanced review of pre-existing high-value individual accounts by 1 July 2015. Accordingly, the corresponding withholding obligations with respect to US source FDAP for preexisting accounts is delayed by six months.
  • The FATCA Portal is projected to open on 19 August 2013 (rather than 15 July 2013). However, information entered into the Portal before 1 January 2014 will not be treated as a final submission. FFIs may finalize their registration information beginning on or after 1 January 2014. The first IRS FFI List will be posted by 2 June 2014 and will be updated monthly thereafter. To ensure inclusion on the initial list, FFIs must finalize their registration by 25 April 2014. No GIINs will be issued in 2013. Verification of a reporting Model 1 FFI’s GIIN is not required for payments made before 1 January 2015.
  • Withholding certificates (Forms W-8) and documentary evidence otherwise expiring on 31 December 2013 will now expire on 30 June 2014, unless a change of circumstances occurs that would otherwise render the document unreliable.
  • Agreements for qualified intermediaries, withholding foreign partnerships and withholding foreign trusts otherwise expiring on December 31, 2013 will automatically be extended until 30 June 2014.

The effective date for withholding on gross proceeds, payments of US source FDAP income paid with respect to offshore obligations by non-intermediaries and, potentially, pass-thru payments has not been changed and remains 1 January 2017.

Additional changes applicable to FFIs include (1) a one-year deferral (to 31 December 2015) to monitor the account balance of preexisting accounts to determine whether enhanced review is required, and (2) removal of the requirement to report on US accounts by 31 March 2015 with respect to calendar year 2013.

One of the most significant concerns over the 1 January 2014 effective date has been the fact that so many IGAs remain to be negotiated, signed and entered into force. FFIs in jurisdictions where IGAs are expected but not completed have been uncertain about whether they should move forward implementing the rules of a Model 1 or Model 2 IGA, or whether they should enter into FFI agreements and implement the rules under the regulations if their IGA might not be in force by 1 January 2014. In response to this concern, the Notice announces that Treasury will publish a list on its website of jurisdictions that may be treated as having an IGA in effect. According to the Notice, “Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA.” A financial institution resident in a jurisdiction that is treated as having an IGA in effect pursuant to this list will be permitted to register on the FATCA Portal as a registered deemed-compliant FFI (e.g., reporting Model 1 FFIs) or PFFI (e.g., reporting Model 2 FFIs), as applicable, and may designate a branch located in such jurisdiction as not a limited branch. The Notice states that a jurisdiction may be removed from the list if it fails to perform the steps necessary to bring the IGA into force within a reasonable period of time. If this happens, financial institutions that are residents of that jurisdiction (and branches located in that jurisdiction) will no longer be entitled to the status that would be provided under the IGA and must update their status on the FATCA registration website accordingly. The list will be maintained at http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx.

Implications

Most stakeholders, including financial institutions, multinational companies, and foreign governments, will welcome an additional six months to prepare for FATCA. However, it should be noted that mid-year effective dates will impose some administrative challenges.

Looking forward, the government continues to work to develop the significant additional guidance that is still needed in order for withholding agents and others affected by FATCA to complete their FATCA implementation programs, including:

  • Conforming regulations under chapters 3 and 4;
  • Technical corrections to the final FATCA regulations;
  • Model FFI agreement;
  • Final versions of the Forms W-8 and W-9 and instructions;
  • Form 8966, FATCA Report, and instructions;
  • Final version of the Form 8957, FATCA Registration, and instructions; and
  • Final versions of the Forms 1042 and 1042-S and instructions.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), International Tax Services, London
  • Anthony Calabrese
    +44 20 7951 5802
    acalabrese@uk.ey.com
Ernst & Young LLP, International Tax Services, Washington, DC
  • Barbara Angus
    +1 202 327 5824
    barbara.angus@ey.com
  • Deborah Pflieger
    +1 202 327 5791
    deborah.pflieger@ey.com
  • Julia Tonkovich
    +1 202 327 8801
    julia.tonkovich@ey.com
Ernst & Young LLP, Business Tax Advisory, Washington, DC
  • Maria Murphy
    +1 202 327 6059
    maria.murphy@ey.com
Ernst & Young LLP, Business Tax Advisory, Minneapolis
  • John McMahon
    +1 651 457 4384
    john.mcmahon@ey.com

EYG no. CM3647