The US Internal Revenue Service (IRS) has pushed back the registration deadline for foreign financial institutions (FFIs) subject to the Foreign Account Tax Compliance Act (Fatca) by 10 days. It has also given jurisdictions that are close to signing Intergovernmental Agreements (IGAs) on Fatca the same status for the remainder of this year as those that have signed agreements.
In practical terms, these decisions by the IRS will give FFIs struggling to meet the data management challenges of Fatca a short breathing space and increased clarity of their status and the data reporting processes they must implement to comply with the legislation. But for many, these changes will be too little and too late to ease the burden of compliance, which requires large volumes of data to be captured and managed ahead of the implementation of Fatca on July 1, 2014.
The IRS published Announcement 2014-17, ‘Update on Jurisdictions Treated as Having an IGA in Effect and on Fatca Financial Institution Registration’, on 2 April, before publication of official guidance on Fatca in the Internal Revenue Bulletin on April 21, 2014. Fatca came into US law in March 2010 and targets tax non-compliance by US taxpayers with foreign accounts. It focuses on reporting, requiring US taxpayers to declare certain foreign financial accounts and FFIs to report financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial interest. The cost of non-compliance is a 30% withholding on any US income.
The IRS says the Fatca registration deadline change from April 25 to May 5, 2014, addresses stakeholders’ practical concerns about registration. It states: “Based on the IRS experience with the registration system and GIIN [Global Intermediary Identification Number] 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 finalised by 5 May rather than 25 April as originally announced.” FFIs on the first IRS List can simplify the documentation of their status with withholding agents, although withholding agents should not require reporting Model 1 FFIs to provide GIINs until January 1, 2015, giving them more time to register. Model 1 FFIs report to local authorities for onward transmission of required Fatca data to the IRS, while Model 2 FFIs report directly to the IRS.
As well as assurance that FFIs will join the first IRS FFI List if they register by the new deadline of May 5, the IRS says FFIs finalising registrations by June 3 will be including on the July 1 IRS FFI list. Noting pressure on registration in the run up to implementation of the legislation, the IRS says FFIs finalising registrations after May 5 or June 3 may still make it onto the June 2 or July 1 IRS FFI Lists, but warns that it cannot provide assurance that this will be the case. It adds: “The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.”
On IGAs, the IRS says the US has signed agreements with 26 jurisdictions and has ‘reached agreements in substance or is in advanced discussions with many others’. Lists of signed agreements and agreements in substance on the website of the US Department of the Treasury show the 26 jurisdiction that have signed IGAs as well as 22 jurisdictions that have reached agreements in substance. The vast majority of jurisdictions on both lists have, or are seeking to secure, Model 1 agreements.
The IRS’s decision to treat jurisdictions that are close to signing IGAs in the same way as those that have signed IGAs reflects concerns that FFIs located in jurisdictions that are expected to sign an IGA, but have not yet signed, are unable to plan effectively and efficiently for the 1 July Fatca deadline. The IRS cites a number of examples here, including concern that FFIs in jurisdictions that have not signed an IGA by April 25 will not be able to register and gain their expected IGA model status in a timely fashion. Similarly, FFIs that expect to be Model 1 FFIs want to ensure inclusion on the first IRS FFI List to simplify documentation of their status with withholding agents, but are concerned that they will not be able to register as Model 1 FFIs before April 25 if their jurisdiction’s IGA is not signed.
To counter these concerns, the IRS states: “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 US on the terms of an IGA and have consented to be included on the Treasury and IRS lists, 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 until December 31, 2014, the date by which the IGA must be signed in order for this status to continue without interruption.”
The IRS reports that the Treasury expects to add jurisdictions to this list in coming weeks as additional jurisdictions consent to inclusion on the list and additional agreements in substance are made. This means FFIs in jurisdictions that are listed on the Treasury and IRS websites as having an agreement in substance will be able to register on the Fatca registration site under the relevant IGA model and will be able to certify their status to withholding agents.
While this will level playing field for many jurisdictions working towards IGAs, the IRS cautions: “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.”