On July 12, 2013 in Notice 2013-43 (the “Notice”), the Internal Revenue Service (the “IRS”) announced a six-month extension to key FATCA start dates including FATCA withholding and “grandfathering obligations,” which have both been extended to July 1, 2014. Corresponding adjustments to various other timeframes, such as those on new account opening procedures and due diligence, are also intended. In addition, the US Department of Treasury (the “Treasury”) and the IRS intend to provide an official list on the Treasury web site of jurisdictions that will be treated as having in effect an inter-governmental agreement (“IGA”). The Notice leaves the timing unchanged for withholding on gross proceeds, passthru payments, and US source fixed, determinable, annual, or periodical (FDAP) payments with respect to offshore obligations by persons not acting in an intermediary capacity and is still scheduled to take effect on January 1, 2015.
As discussed in the CMS FATCA UpdateFFIsFATCA Regulations of February 2013, FATCA was enacted in 2010 with the aim of reducing tax evasion by US persons holding investments in offshore accounts. FATCA requires foreign financial institutions (), which include all non-US banks and many non-US investment funds, to report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. FATCA requires US financial institutions to withhold a portion of payments made to FFIs who do not agree to identify and report information on US account holders. Fortunately, the United Kingdom has signed a bilateral agreement with the United States that should largely ease many of the reporting and withholding requirements that would otherwise be imposed under FATCA (as discussed in detail in the CMS FATCA Update of February 2013). The final FATCA regulations were released on January 17, 2013 (the “”) and provide for a phased implementation of FATCA, originally beginning on January 1, 2014 and now beginning on July 1, 2014, and continuing through 2017.
- The earliest date for FATCA withholding on US source payments will now be July 1, 2014. Withholding agents generally will be required to begin withholding on US source withholdable payments at this time to payees that are FFIs or non-financial foreign entities (NFFEs) with respect to obligations that are not grandfathered.
- “Grandfathered obligations” will be revised to include obligations (and assisted collateral) outstanding on July 1, 2014, as opposed to January 1, 2014. The grandfather provisions eliminate FATCA withholding entirely for certain obligations.
- Withholding agents generally will be required to implement new account opening procedures by the later of July 1, 2014 or the effective date of its IGA, if applicable, with related due diligence on pre-existing obligations being extended from June 30, 2014 to December 31, 2014.
- The FATCA Regulations provided that a participating FFI would be required to file information reports on its US accounts with respect to the 2013 and 2014 years no later than March 31, 2015. Under the Notice, the Regulations will be modified so that the deadline for the first report of information will continue to be March 31, 2015 but will include information about accounts maintained only with respect to the 2014 calendar year.
- The FATCA registration website is planned to be accessible on August 19, 2013, as opposed to the previous date of July 15, 2013. A FFI will be able to input information from August 19, 2013, however, any information entered into the system will merely be stored until the information is submitted as final on or after January 1, 2014. Consistent with this six-month extension, the IRS now expects to start issuing global intermediary identification numbers ("GIINs") in 2014 instead of 2013. FFIs will need to finalise their registration by April 25, 2014 in order to ensure inclusion on the first FFI list which is expected to be posted by the IRS on June 2, 2014.
Inter-Governmental Agreements ("IGAs")
To make FATCA compliance feasible, particularly for FFIs in jurisdictions where existing laws (such as data protection issues) prohibit such reporting, the Treasury has developed IGAs that rely on governmental cooperation. To date, nine IGAs have been signed, including a US-UK Agreement. The United States is engaged in related conversations with more than 80 countries.
Pursuant to the Notice, the IRS will provide an official list on its web site of jurisdictions that will be treated as having in effect an IGA. The Treasury and the IRS, responding to comments surrounding the practical difficulties for FFIs and withholding agents to complete due diligence and implement related procedures with continued uncertainty surrounding whether an IGA between the United States and a particular jurisdiction will be in effect, intend to list Jurisdictions that have signed but have not yet brought into force an IGA.
For the CMS FATCA Update of February 2013, please click here.
If you have any questions or require US tax advice, please contact Daniel Winterfeldt or another member of the US securities team to discuss you queries or to obtain a referral for more specialist advice.