Treasury and IRS Extend FATCA Deadlines

by Orrick, Herrington & Sutcliffe LLP
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Notice 2013-43 (http://www.irs.gov/pub/irs-drop/n-13-43.pdf), released on July 12, 2013, announces the Internal Revenue Service's (the "IRS") and the Department of the Treasury's intent to amend final Treasury regulations implementing the U.S. Foreign Account Tax Compliance Act ("FATCA") to (1) extend certain implementation dates for withholding and account due diligence and (2) specifically identify jurisdictions treated as having in force intergovernmental agreements ("IGAs") for the implementation of FATCA, including jurisdictions that have signed IGAs but have not yet brought those IGAs into force. 

Taxpayers are permitted to rely on the provisions of Notice 2013-43 until amended regulations are issued.

Extension of FATCA Implementation Dates

The Notice makes the following amendments:

  • Withholding will begin on U.S.-source FDAP payments made after
    June 30, 2014, to foreign financial institutions ("FFIs") or non-financial foreign entities that are not FATCA compliant with respect to obligations that are not grandfathered obligations or treated as exempt from withholding.
  • "Grandfathered obligations" will now include obligations outstanding on (and not materially modified after) July 1, 2014 (and associated collateral).
  •  Implementation of new account opening procedures is now required by July 1, 2014 (or for a participating FFI ("PFFI"), the later of July 1, 2014 or the effective date of its FFI agreement)Accordingly, for these purposes, and, as revised by the Notice,  the term "preexisting obligation" means any account, instrument or contract maintained, executed, or issued with respect to a:

o   withholding agent other than a PFFI or registered deemed-compliant FFI, if outstanding
      on June 30, 2014,

o   PFFI, if outstanding on the effective date of its FFI agreement, and

o   registered deemed-compliant FFI, if maintained, executed or issued prior to the later of
    July 1,  2014, or the date on which the FFI registers as a deemed-compliant FFI and receives
    a Global Intermediary Identification Number ("GIIN").

  • The Notice also indicates that a similar change to the definition of the term "preexisting    account" in both model IGAs (discussed below) will be made.
  •  Due diligence on preexisting obligations is postponed six months. This postponement will affect the effective dates of FATCA withholding with respect to such preexisting obligations for withholding agents.
  •  The obligation to monitor account balance or value of preexisting accounts to determine whether enhanced review is required is deferred to the end of 2015.
  • The due date for PFFIs to file their first information reports with respect to U.S. accounts for the 2014 calendar year is delayed to March 31, 2015 (no requirement to file for earlier years).
  • Extension of the limited transition rule provided in Notice 2012-20 to apply the foreign-targeted registered obligation rules of §1.871-14(e) to obligations issued in registered form after March 18, 2012 and before July 1, 2014.

Provisions of FATCA Not Extended

  • The timetable for withholding on gross proceeds, pass-thru payments and the payment of U.S. source FDAP with respect to offshore obligations by persons not acting in an intermediary capacity is not extended.
  •  Annual reporting by PFFIs of the full scope of FATCA information is still required by the beginning of 2017.

Timeline for Registration and Assignment of GIINs is Extended

  •  August 19, 2013—The FATCA registration website is projected to be accessible to financial institutions to begin the registration process.
  • Between August 19, 2013 and December 31, 2013—Registration information submitted will not be treated as a final submission but merely stored on the website.
  •  Beginning January 1, 2014, financial institutions must finalize registration information by logging into their account, making any necessary changes and submitting the information as final.  Information submitted as final to be treated as final.
  • After January 1, 2014, GIINs will be issued.
  •  FFIs that finalize registration by April 25, 2014, will be included on the first IRS FFI List which will be posted by June 2, 2014.
  • Prior to January 1, 2015, verification of GIINs is not required with respect to payees that are reporting Model 1 IGA FFIs.  Accordingly, Model 1 FFIs may register and obtain GIINs beginning January 1, 2014, but they will have additional time beyond July 1, 2014, to register and obtain GIINs to ensure they are included on the IRS FFI list before January 1, 2015.

Extension of Certain Expiring Certificates, Documentary Evidence, and Agreements

  • For chapter 3 withholding purposes, withholding certificates and documentary evidence that would otherwise expire on December 31, 2013, will expire on June 30, 2014 (unless a change in circumstances occurs that would otherwise render such item incorrect or unreliable).
  • Qualified Intermediary, Withholding Trust and Withholding Partnership Agreements otherwise expiring on December 31, 2013, will expire on June 30, 2014.

Treatment of Listed Jurisdictions as having IGAs in effect

  • There are presently two model IGA formats.  The Model 1 IGA requires FFIs to report to the government of the jurisdiction of the FFI.  The Model 2 IGA requires FFIs to report to the IRS.  Jurisdictions that have signed IGAs, even if the IGA has not entered into before July 1, 2014, will be treated as jurisdictions that have an IGA in force if appearing on a list to be published at http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx.  This list will provide needed certainty to FFIs, especially those in jurisdictions that have entered into or are in the process of entering into Model 1 IGAs with respect to their ability to register on the FATCA website as registered deemed-complaint FFIs.

Key FATCA Implementation Dates

  • The following chart provides changes to key implementation dates for FATCA as a result of Notice 2013-43.

Activity

Effective Date

Change Made by the Notice

Expected date the Portal will open for FATCA registration

July 15, 2013

August 19, 2013

Registration deadline for FFIs to ensure inclusion on the IRS's electronically posted list of participating FFIs and registered-deemed compliant FFIs

October 25, 2013

April 25, 2014

Completion of due diligence on preexisting obligations by PFFIs

December 31, 2013

June 30, 2014

Expiration of grandfather period for issuance of obligations exempted from FATCA withholding (unless the obligation gives rise to a withholdable payment solely because obligation is treated as giving rise to a dividend equivalent under Code section 871(m) or unless the obligation requires a secured party to make a payment with respect to, or to repay, collateral posted to secure a grandfathered obligation) (See below for effective date with respect to foreign passthru payments)

January 1, 2014

July 1, 2014

FATCA withholding required on U.S. source FDAP payments to nonparticipating FFIs

January 1, 2014

July 1, 2014

Implementation of new account opening procedures

January 1, 2014, or, in the case of a PFFI, by the later of January 1, 2014 or the effective date of its FFI agreement

July 1, 2014, or, in the case of a PFFI, by the later of July 1, 2014 or the effective date of its FFI agreement

FATCA withholding required on U.S. source FDAP payments to prima facie FFIs with respect to preexisting obligations

July 1, 2014

January 1, 2015 for payments by a withholding agent other than a PFFI

Reporting deadline for participating FFIs to file information reports with the IRS for both the 2013 and 2014 calendar year

March 31, 2015

March 31, 2015, but now only applies for 2014 calendar year (no requirement to file for earlier years)

Withholding on payments with respect to preexisting obligations that are outstanding on December 31, 2013, unless payee is a nonparticipating FFI or the payee is not prima facie FFI

January 1, 2016

With respect to preexisting obligations that are outstanding on June 30, 2014.

FATCA withholding required on gross proceeds

January 1, 2017

No Change

Withholding required with respect to foreign passthru payments

Later of January 1, 2017 or six months after final Treasury Regulations defining a "foreign passthru payment" are issued.

No Change

FATCA withholding required on U.S. source FDAP payments made with respect to an offshore obligation

January 1, 2017

No Change

For a fuller discussion of the FATCA Treasury Regulations which are being amended by Notice 2013-43 see http://www.orrick.com/Events-and-Publications/Pages/Tax-Law-Update---March-2013.aspx.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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