Under the Foreign Account Tax Compliance Act (FATCA), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans' and U.S. permanent residents' offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets.
"Since the 2012 release of the Model 1 and Model 2 intergovernmental agreements (IGAs) to implement the Foreign Account Tax Compliance Act (FATCA), there has been robust and growing interest from jurisdictions worldwide to enter into IGAs. To date, the United States has signed IGAs with 26 jurisdictions and has reached agreements in substance or is in advanced discussions with many others.
Foreign financial institutions (FFIs) and other stakeholders continue to express strong support for a broad IGA network as a way to facilitate FATCA compliance while avoiding legal conflicts, and to more effectively and efficiently implement cross-border tax information reporting. They have also expressed practical concerns about the status of FFIs in jurisdictions that are known to be in an advanced stage of concluding an IGA, but have not yet signed an agreement.
For this reason, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) are issuing this announcement:
- to provide FFIs in jurisdictions that already have reached an agreement in substance on the terms of an IGA with the clarity they need to prepare to comply with FATCA.
- This announcement also addresses stakeholders’ practical concerns by allowing an FFI ten additional days to register in preparation for FATCA implementation on July 1 and still ensure that its Global Intermediary Identification Number (GIIN) will appear on the first public list of GIINs.
This decision increased to 48 from 26 the number of countries that have "intergovernmental agreements" (IGAs) with the United States, which allow a country's financial institutions to comply with FATCA via their domestic regulators. This would include Brazil, South Korea and South Africa, among other countries, who are in the process of negotiating IGA with the US.
Before the announcement, many foreign businesses were unsure how to comply with FATCA by July 1, 2014 if their home countries had not yet signed IGA deals with the United States. Countries left off the list were China, Hong Kong, Russia and Singapore.
26 nations with agreements, with links to their agreements:
- Cayman Islands
- Costa Rica
- Isle of Man
- United Kingdom
- British Virgin Islands
- Czech Republic
- New Zealand
- South Africa
- South Korea
This announcement aims to address these concerns by providing that the jurisdictions listed on the Treasury and IRS websites as jurisdictions that are treated as having an IGA in effect will also include jurisdictions that, before July 1, 2014, have reached agreements in substance with the United States on the terms of an IGA and have consented to be included on the Treasury and IRS list, even if those agreements have not yet been signed.
Such jurisdictions will be treated as having an IGA in effect from the date that the jurisdiction provides its consent (or April 2, 2014, the date of the public release of this announcement, if later) until December 31, 2014, the date by which the IGA must be signed in order for this status to continue without interruption. Treasury expects to add jurisdictions to this list in the coming weeks as additional jurisdictions consent to inclusion on the list and additional agreements in substance are reached. Jurisdictions that reach agreements in substance on or after July 1, 2014, will not be included in the list of jurisdictions that are treated as having an IGA in effect until the IGA is signed.
A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if Treasury determines that the jurisdiction is not taking the steps necessary to bring the IGA into force within a reasonable period of time, and, as noted above, a jurisdiction will be removed from the list if the jurisdiction fails to sign the IGA by December 31, 2014. If a jurisdiction is removed from the list, FFIs that are resident in, or organized under the laws of, that jurisdiction, and branches that are located in that jurisdiction, will, from the first day of the month following the month of removal, no longer be entitled to the status that would be provided under the IGA, and will be required to update their status on the FATCA registration website accordingly.
New Dates for Registering to Ensure GIIN Inclusion on the IRS FFI List
As described in Notice 2013-43, FFIs resident in, or organized under the laws of, a jurisdiction that is treated as having an IGA in effect, which, pursuant to this announcement includes jurisdictions listed on the Treasury and IRS websites as having reached agreements in substance on IGAs before July 1, 2014, should register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or a participating FFI (which would include all reporting Model 2 FFIs), as applicable. Importantly, withholding agents are still not required to obtain the GIINs of FFIs that are treated as reporting Model 1 FFIs before January 1, 2015.
Based on the IRS experience with the registration system and GIIN generation process to date, the IRS now believes that it can ensure registering FFIs that their GIINs will be included on the June 2 IRS FFI List if their registrations are finalized by May 5, 2014 (GMT -5), rather than April 25, 2014, as originally announced. Further, the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014 (GMT -5). FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.
Finally, Treasury and the IRS remind all withholding agents that, in accordance with Reg. §1.1471-3(e)(3), a withholding agent that receives a Form W-8 from a payee with a GIIN that does not yet appear on the published IRS FFI List has 90 days to verify that the GIIN appears on the list before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect. In addition, a withholding agent that receives a Form W-8 from a payee indicating that the payee has applied for a GIIN has 90 days to obtain the GIIN from the payee and verify it against the IRS FFI List before the withholding agent will be treated as having reason to know that the chapter 4 status of the payee is unreliable or incorrect.
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