In response to taxpayer concerns about the practicality of meeting certain FATCA compliance timeline dates, the IRS, in Notice 2013-43 issued today, has extended some of those dates and made certain conforming changes. Some of the key revisions made by the Notice are briefly summarized below.

Required withholding on U.S.-source FDAP, such as interest and dividends, is delayed until July 1, 2014. Obligations outstanding on July 1, 2014 (rather than January 1, 2014) will be grandfathered so long as they are not materially modified after July 1, 2014.

Background

The FATCA provisions of the Internal Revenue Code, as implemented in final regulations issued in January, generally require withholding agents, beginning January 1, 2014, to withhold 30 percent of certain payments of U.S.-source fixed or determinable annual or periodic income (FDAP), such as interest and dividends, to foreign entities that are not FATCA-compliant.

Parallel to the FATCA regime under the Code and regulations, the IRS and Treasury have been negotiating and entering into intergovernmental agreements (IGAs) with other countries pursuant to which foreign financial institution (FFIs) may become FATCA-compliant by complying with the terms of the IGAs, once they come into force in the partner IGA countries. For example, under a “Model 1 IGA,” FFIs generally may comply with FATCA by providing U.S. account information to the partner IGA country rather than through an FFI agreement with the IRS as a “participating FFI” (PFFI). Generally, in many instances compliance under an IGA is simpler than compliance through an FFI agreement.

Under the final regulations, obligations (including debt obligations, but not equity) outstanding as of January 1, 2014, are grandfathered, and no withholding is required on payments on those obligations if they are not significantly modified after January 1, 2014.

Also under the final regulations, the first information report from a PFFI on its U.S. accounts with respect to the 2013 and 2014 calendar years is due by March 15, 2015.

The IRS expected that FFIs could begin registering with the IRS through an electronic portal scheduled to open on July 15, 2013. After approval of the registration, an FFI would be assigned a global intermediary identification number (GIIN) on which withholding agents generally may rely in determining whether an FFI is FATCA-compliant. The IRS stated in the preamble to the final regulations that if registration occurs by October 15, 2013, the FFI with its assigned GIIN would appear on a list to be published by December 2, 2013.

Key Timeline and Other Changes

The Notice makes the following timeline and related changes, which eventually will be implemented by amendment of the final regulations:

• Required withholding on U.S.-source FDAP, such as interest and dividends, is delayed until July 1, 2014. Obligations outstanding on July 1, 2014 (rather than January 1, 2014) will be grandfathered so long as they are not materially modified after July 1, 2014.
• The electronic portal for registering as a PFFI or a deemed-compliant FFI is now expected to open on August 19, 2013. Other key dates in the registration process generally are extended by six months. Through December 31, 2013, FFIs can input, update and modify registration information without it being treated as final. Beginning January 1, 2014, FFIs will be expected to finalize their information. The IRS will begin issuing GIINs in 2014 as registrations are finalized. The first GIIN list will be issued on June 2, 2014, for FFIs that finalize their registration by April 25, 2014 (effectively a six-month extension).
• Very broadly, the deadline for withholding agents to implement procedures for opening new accounts and identify U.S. account holders has been delayed six months to July 1, 2014 (or for a PFFI, the effective date of its FFI agreement, if later). The deadline for completing due diligence on certain pre-existing obligations also generally has been delayed by six months.
• The first information report from a PFFI on its U.S. accounts identified by December 31, 2014 will be due by March 31, 2015, and only with respect to 2014 (not 2013 as well under the final regulations).
• Very generally, corresponding timeline extensions will be made under the IGAs, including those already signed. Importantly, a country will be treated as having an IGA in effect once it is signed, even if it has not yet been brought into force under the country’s laws. Treasury and IRS will provide a list of countries whose IGAs will be treated as in effect. An FFI subject to such an IGA will be permitted to register as being FATCA-compliant. If a country fails to perform the steps necessary to bring the IGA into force within a reasonable time, it may be removed from the list. In that case, an FFI in that country will no longer be entitled to status under the IGA and will have to update its registration.