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April 19, 2013 Foreign Account Tax Compliance Act (FATCA) The Final Regulations and IGAs
High Level Overview
Copyright © 2013 Deloitte Development LLC. All rights reserved. Risk-based approach that addresses: –Policy considerations –Eliminates unnecessary burdens –Builds on existing practices and obligations –Minimizes operational costs with collecting and reporting FATCA information Focus of FATCA is on identification and reporting –Additional exceptions for low risk –Relief regarding identification and documentation requirements –Ability to outsource to agents –Special rules regarding Qualified Intermediaries, Withholding Partnerships and Withholding Trusts. IRS and Treasury Approach
Copyright © 2013 Deloitte Development LLC. All rights reserved. Collaboration with foreign governments to: –Remove legal impediments. –Allow for alignment and coordination with local law reporting practices; and –Reduce the cost of compliance for Financial Institutions. Issuance of two model Intergovernmental Agreements or IGAs and the signing of five agreements. –IGAs represent efficient and effective ways of implementing FATCA and Treasury has stated that they are committed to working cooperatively with foreign jurisdictions to improve transparency and information exchange on a global basis. –TIEAs or DTCs are generally required to facilitate exchange of information under an IGA approach. IRS and Treasury Approach
Copyright © 2013 Deloitte Development LLC. All rights reserved. Model 1 jurisdictions will be governed by local law Model 2 jurisdictions will be more closely aligned with US Regulations Treasury has indicated that FIs that are in countries that have already signed IGAs can use the “more generous” provisions in the newly published FATCA regulations, when to do so would be to their benefit. It will be for the local countries to adopt these provisions by way of legislation and guidance. Presumably this means that in one sense the final regulations are the starting point, which an IGA can only improve on. Coordination Between Regulations and IGA
Copyright © 2013 Deloitte Development LLC. All rights reserved. Annex 1 of the Model IGA generally permits FFIs in IGA countries to use any “more generous provisions” of equivalent IGAs. –Expected that more beneficial provisions in final regulations will be adopted when local Regulations/Guidance enacted. Annex 2 of the Model IGA provides for country specific entity and product exemptions IGA applies to all Financial Institution within the local country Exceptions from withholding No requirement to close accounts Local country government will enforce –May not require a Responsible Officer There are significant differences between Model 1 and Model 2 IGAs that will create complexity in administration for multinational FFIs IGA Highlights
Copyright © 2013 Deloitte Development LLC. All rights reserved. Technical Corrections Amendments to Chapter 3 and Chapter 61 regulations to coordinate them with the FATCA requirements Additional FATCA Regulations addressing reserved issues FFI Agreements Forms W-8’s Form 8966 and updated 1042 and 1042S Additional IGAs More coming….
Highlights of the Final FATCA Regulations and interaction with IGAs
Copyright © 2013 Deloitte Development LLC. All rights reserved. Dec 31 - High Value Individuals FATCA Compliance Action Items 201320142015201620172018 General Compliance GIIN registration deadline for 2012 List Grandfathered obligation cutoff Effective date of FFI Agreement for FFIs receiving a GIIN prior to December 31, 2013 Transition period for affiliated group rule New / Preexist ing Account s USWA and FFI begin new account onboarding USWA and FFI complete preexisting accounts Withholding Begin income withholding (excludes certain offshore payments of U.S. source income) Begin offshore U.S. source income payment withholding Begin gross proceeds withholding Begin foreign -passthru payments withholding Reporting FFI begin U.S. Account information and balance reporting * FFI begin U.S. Account income reporting* FFI begin U.S. Account gross proceeds reporting* FFI aggregate reporting on NPFFI payments (only for 2015 and 2016)** USWA begin U.S. Owner reporting* Begin reporting on withholdable income payments ** Begin reporting on gross proceeds ** Final FATCA Regulations Timeline Jan 1 Dec 31 Jan 1 Mar 31 Jan 1 Mar 31 Mar 15 Jan 1 Dec 31 - All other entity accounts Mar 31 Mar 15 Jun 30 - Prima Facie FFIs Mar 31 Mar 15 Highlights *Form 8966 **Form 1042-S Jan 1 Oct 25
Copyright © 2013 Deloitte Development LLC. All rights reserved. Changed the definition of an FI with respect to investment entities to match IGA definition –Includes fund managers (and others which invest, administer or manage funds, money or other financial assets on behalf of other persons) –Passive entities that are not professionally managed will be NFFEs Adds Holding Companies and Treasury Centers of expanded affiliated groups that include financial institutions; or those availed of by investment vehicles Under IGA, Holding Companies and Treasury Centers regarded as either Active or Passive Non-Financial Foreign Entities (NFFEs), depending upon activities of broader group Under US Regulations, exemptions for financial institutions and certain passive NFFEs that are part of nonfinancial groups Exemptions for certain Inter-Affiliate FFI’s for entities that do not maintain accounts outside members of its EAG and have agreed not to act as agent for another FFI within the group Made modifications to and added several new deemed compliance statuses Financial Institutions
Copyright © 2013 Deloitte Development LLC. All rights reserved. Permits documentary evidence that does not contain an address under certain circumstances. Provisions are made under certain circumstances for use of self-certifications (as in IGA jurisdictions), certain substitute forms W-8 without penalty of perjury language or written statements. Provisions to accept third party credit information as a part of the due diligence procedures. Permits documentary evidence to remain valid until expiration date if longer than 3 years and in some cases valid indefinitely, unless change in circumstances. Again in line with an IGA approach. Permits a new account to be treated as a preexisting account in certain circumstances. Ability to cure of inconsequential errors. Risk-based approach
Copyright © 2013 Deloitte Development LLC. All rights reserved. Foreign language substitute forms A withholding agent may use a substitute form that is written and filled out in a language other than English but the withholding agent must make available an English translation of the form and its contents to the IRS upon request. Documentation standards Reason to know standards must be applied throughout the onboarding process –A withholding agent has reason to know that a withholding certificate provided by a person is unreliable or incorrect if the withholding certificate is incomplete or if the withholding agent has other account information that is inconsistent with the person’s claim. –Under an IGA approach, a Financial Institution’s ‘reason to know’ is applied to reliance upon all self-certifications and documentary evidence. Client onboarding: General considerations
Copyright © 2013 Deloitte Development LLC. All rights reserved. Withholding will be phased in between 2014 and 2017. –It is anticipated that FFIs (other than FFIs serving as intermediaries) will not have to withhold until 2017. January 1, 2014: Withholding will be required on income payments. –FDAP (Fixed, Determinable, Annual and Periodic): Includes U.S. sourced interest, dividends, OID, rents, royalties other than offshore. January 1, 2017: Withholding requirements will be expanded to include gross proceeds as well as income payments. –Gross proceeds from the sale of property that generates U.S. sourced interest or dividends. –U.S. source payments on offshore obligations. January 1, 2017 (or after foreign passthru payment defined): Date required to apply withholding on passthru payments. –Foreign passthru payments not yet defined. Withholding Highlights
Copyright © 2013 Deloitte Development LLC. All rights reserved. Reporting will be phased in gradually between 2015 and 2017 2015: –FFIs are required to report name, address, TIN, account number and account balance on U.S. accounts (U.S. Account Reporting), in line with IGA requirements. –If the FFIs agreement is effective date on or before December 31, 2014, it is required to report U.S. accounts maintained during 2013 that are outstanding on December 31, 2013. 2016: ‒ FFIs are required to add income payments made in the prior year to its U.S. Account Reporting, again in line with IGA requirements. ‒ FFI is required to complete Forms 1042-S allocating the income and withholding paid to its recalcitrant account holder pools. ‒ Reporting is required regardless of whether the FFI made a payment of a chapter 4 reportable amount to each such account holder. ‒ FFI must aggregate report on NPFFI payments made in 2015, as under IGA approach. Reporting: Timing
Copyright © 2013 Deloitte Development LLC. All rights reserved. 2017: ‒ FFI are required to add gross proceed payments made in the prior year to its U.S. Account Reporting, aligning with IGA approach. ‒ FFI is required to complete Forms 1042-S allocating the income and withholding paid to its recalcitrant account holder pools. ‒ FFI must aggregate report on NPFFI payments made in 2016, as under IGA approach. An FFI can elect to do Form 1099 reporting. Reporting is required to be filed electronically on March 31, 2015. Reporting: Timing
Copyright © 2013 Deloitte Development LLC. All rights reserved. The FFI that maintains the account is generally responsible for reporting the account. –The final regulations add a rule to determine when the FFI is treated as maintaining an account. FFIs will be issued a GIIN that will used for FATCA reporting purposes –The IRS currently contemplates that the GIIN will also be used by QIs, in lieu of the current QI EIN, for purposes of QI reporting, as well as for reporting to local Competent Authorities under an IGA model. Reporting does not need to be performed in U.S. currency. The character of payments may be determined under the same principles that the FFI uses to report information to the tax authorities in their own country. –The amount and character of items of income need not be determined in accordance with U.S. federal income tax principles. –In the UK, a consistent and verifiable approach must be adopted to valuation. Reporting: Highlights
Copyright © 2013 Deloitte Development LLC. All rights reserved. The IRS intends to release a new Form 8966, “FATCA Report,” that will be used by FFIs (including QIs, WPs, WTs) and withholding agents to comply with their chapter 4 reporting obligations. This new Form 8966 will set forth all the information that must be reported with respect to financial accounts. Will be used to report: –Certain information regarding U.S. accounts. –Substantial U.S. owners of passive NFFEs and owner documented FFIs. –Aggregate recalcitrant account information. Form 8966 will be filed electronically with the IRS on or before March 31 of each year reporting prior year information. Reporting: Form 8966
Copyright © 2013 Deloitte Development LLC. All rights reserved. The final regulations provide the requirements for; verifying compliance with the FFI agreement, defining an event of default and procedures for remediating of an event of default, allow participating FFIs to file collective refund claims on behalf of certain account holders and payees for amounts overwithheld, and provide procedural requirements if a participating FFI is legally prohibited from reporting or withholding as required under the FFI agreement. Further guidance pending The IRS expects to publish a revenue procedure setting out the terms of the FFI agreement, and including administrative provisions such as those relating to termination, renewal, and modification of the agreement. FFI agreements
Copyright © 2013 Deloitte Development LLC. All rights reserved. FFIs will go through a paperless registration process using a secure online web portal from anywhere in the world. It is expected that the portal will also be used by Financial Institutions in IGA jurisdictions to obtain a GIIN for local reporting purposes. Registered FFIs designated as leads of an expanded affiliated group will use the portal to manage the registration status of group members. The Portal will also be used by registering FFIs that are already Qualified Intermediaries (QIs) to renew their QI status. Registering entities will also use the Portal to manage their information, and, as appropriate, agree to the terms of or make the representations required for their status. The Portal will also facilitate electronic communication between the IRS and registrants. Registration process
Copyright © 2013 Deloitte Development LLC. All rights reserved. Compliance program-- The participating FFI must appoint a responsible officer to oversee the participating FFI’s compliance with the requirements of the FFI agreement. The responsible officer must (either personally or through designated persons) establish a compliance program that includes policies, procedures, and processes sufficient for the participating FFI to satisfy the requirements of the FFI agreement. The responsible officer (or designee) must periodically review the sufficiency of the FFI’s compliance program and the FFI’s compliance with the requirements of an FFI agreement during the certification period. The IRS can require an external audit of the FFIs compliance program. Under an IGA model, a responsible officer is not required, however a nominated individual role is likely to exist, which may align with current CRM obligations. FFI compliance program requirements
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