In a welcome announcement made on 2 April 2014, the US Internal Revenue Service (IRS) made provision for Financial Institutions in jurisdictions that have already reached an "agreement in substance" on the terms of a Model 1 or Model 2 intergovernmental agreement (IGA) (including the British Virgin Islands) to register with the IRS and obtain a GIIN notwithstanding that the IGA is yet to be signed.
The BVI Government announced on 11 March 2014 that it had concluded negotiations with the United States on a Model 1 IGA under the US Foreign Account Tax Compliance Act (FATCA). The Model 1 IGA is an agreement between governments for automatic exchange of information in tax matters. Under the terms of the IGA, BVI Reporting Financial Institutions will be required to identify US accounts and report specified information about those US accounts to the BVI competent authority. The BVI competent authority will then pass this information to the IRS on an automatic basis.
Although BVI Reporting Financial Institutions will not report to the IRS they will still need to apply for a Global Intermediary Identification Number (GIIN) from the IRS and register as Registered Deemed Compliant Foreign Financial Institutions. Obtaining a GIIN will provide independent certification to withholding agents of FATCA compliance. Financial Institutions (FIs) in Model 1 jurisdictions do not need to register for a GIIN until 1 January 2015 in contrast to FIs in non-IGA jurisdictions which must register and hold a GIIN by 1 July 2014 in order to avoid the withholding tax imposed by FATCA. The IRS has recognised stakeholder concern that Financial Institutions (FIs) located in jurisdictions that are expected to sign an IGA but have not yet signed the agreement are unable to plan effectively and efficiently for commencement of FATCA on 1 July 2014. Specifically, in light of the March 11 announcement BVI Reporting Financial Institutions have expected to be able to rely on the special rule providing that withholding agents to not need to obtain GIINs until 1 January 2015 but have been concerned about the inability to apply for a GIIN until the IGA is signed.
The IRS announcement provides that the list of jurisdictions on the IRS website as having an IGA in effect will also include jurisdictions that have reached agreement in substance on the terms of an IGA even if those agreements have not yet been signed. The expanded list (which includes the BVI) can be accessed here. Such jurisdictions will be treated as having an IGA in effect. Specifically, this means that BVI FIs will be permitted to register on the FATCA registration website consistent with its treatment under the Model 1 IGA and is permitted to certify such status to a withholding agent. The text of the IGA will not be published until it is signed.
Extension of Registration Deadlines
In the same announcement, the IRS issued a 10 day extension to the initial 25 April deadline for FIs to register for a GIIN and appear on the first published list. FIs now have until 5 May 2014 to complete FATCA registration and appear on the first list of GIINs to be published on 2 June 2014. In addition, a FI which finalises its registration by 3 June will be included on the 1 July list. The IRS confirmed that withholding agents are not required to obtain a GIIN from FIs in Model 1 jurisdictions until 1 January 2015.
BVI Reporting Financial Institutions can now register on the FATCA registration website as a registered deemed-compliant FFI. In order to appear on the first list to be published by the IRS, registration must now be completed by 5 May 2014. However, it is important to note that a BVI FI will not be required to provide a GIIN in order to avoid withholding until 1 January 2015.