Global Tax Alert | 6 November 2013

US IRS issues additional guidance regarding FATCA

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On 29 October 2013, the IRS issued Notice 2013-69 (the Notice) its latest guidance under the Foreign Account Tax Compliance Act (FATCA). The Notice includes a draft of the agreement that foreign financial institutions (FFI), other than those in countries that have Model 1 intergovernmental agreements (IGAs), will enter into with the IRS. This FFI agreement (FFIA) will be finalized by 31 December 2013. The Notice also provides guidance regarding registration through the FATCA portal for participating FFIs and reporting Model 2 FFIs. While greatly anticipated, the FFIA does not contain many surprises and is consistent with the requirements described in Treas. Reg. Section 1.1471-4. However, the Notice does explain some intended modifications to the final FATCA regulations.

Anticipated modifications to the final FATCA regulations announced in the Notice include provisions that will:

  • Allow a non-US payor or middleman that is a PFFI or a Model 1 or Model 2 FFI to satisfy their Form 1099 reporting obligations with FATCA reporting (unless the payor applies back up withholding).
  • Clarify that, if a withholding agent has imposed FATCA withholding on a payment that would otherwise also be subject to backup withholding, that no backup withholding will be required.
  • Provide that a PFFI will not be required to report foreign reportable amounts paid to a nonparticipating FFI for 2015 and 2016 when the payment was not associated with a financial account.
  • Create two new types of passive nonfinancial foreign entities (NFFEs). Passive NFFEs must generally provide information about their direct and indirect substantial US owners to withholding agents or PFFIs with which they hold accounts. However, “direct reporting NFFEs” and “sponsored direct reporting NFFEs” will be able to report information about their substantial US owners directly to the IRS, instead of providing that information to their withholding agents. These NFFEs will be treated as “excepted NFFEs” and will be required to register with the IRS and obtain a global intermediary identification number (GIIN), which they will furnish on Forms W-8BEN-E, Certificate of Status of Beneficial Owner for United States Withholding and Reporting (Entities), to their withholding agents, who will be required to validate the NFFEs’ GIINs, just as they will verify GIINs received from FFIs.
  • Provide that NFFEs that are qualified intermediaries (QIs), withholding foreign partnerships (WPs) and withholding foreign trusts (WTs) will not be classified as passive NFFEs.
  • Recognize certain foreign insurance companies that have made elections under Section 953(d) to be treated as US insurance companies for FATCA purposes (the final regulations generally classify these entities as foreign entities).

As with each round of new FATCA guidance, it will be necessary for multinational enterprises (MNEs) with FFIs in non-IGA and Model 2 IGA countries to update their FATCA compliance plans and requirements to reflect the new information in the Notice and draft agreement. Among other things, certain reporting requirements have been changed and clarified and new categories of non-financial foreign entities have been added. The addition of new entity categories will also be relevant to FFIs in countries adopting Model 1 IGAs. Additional guidance is promised by the IRS in future months.

Within the next year, all MNEs will need to understand the impact FATCA will have on their operations globally. They will need to have identified any FFIs and other withholding agents in their groups and assure that they can comply with FATCA by 1 July 2014. They will also need to design and implement the process and controls necessary to ensure FATCA compliance and avoid financial statement and tax exposure as well as commercial interruption due to non-compliance.

FATCA’s payee and account holder documentation, information reporting and withholding provisions will go into effect 1 July 2014.

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

Ernst & Young LLP, Washington, DC
  • Barbara M. Angus
    +1 202 327 5824
    barbara.angus@ey.com
  • Lilo Hester
    +1 202 327 5764
    lilo.hester@ey.com
  • Margaret O’Connor
    +1 202 327 6229
    margaret.oconnor@ey.com
  • Deborah Pflieger
    +1 202 327 5791
    deborah.pflieger@ey.com
  • Maria Murphy
    +1 202 327 6059
    maria.murphy@ey.com
  • George G. Fox
    +1 202 327 5621
    george.fox@ey.com
Ernst & Young LLP, New York
  • Faye M. Polayes
    +1 212 773 7287
    faye.polayes@ey.com
  • Justin O’Brien
    +1 212 773 4767
    justin.obrien@ey.com
  • Terence Cardew
    +1 212 773 3628
    terence.cardew@ey.com
  • Douglas M. Sawyer
    +1 212 773 8707
    douglas.sawyer@ey.com
  • Alexandra Cruz
    +1 212 773 6843
    alexandra.cruz@ey.com
Ernst & Young LLP, Boston
  • Matt Blum
    +1 617 585 0340
    matt.blum@ey.com
  • Ann Fisher
    +1 617 585 0396
    ann.fisher@ey.com
  • Dawn McGuire
    +1 617 375 3737
    dawn.mcguire@ey.com
  • Sean Wang
    +1 617 585 1907
    sean.wang@ey.com

EYG no. CM3940