1. A Brief Primer on the Foreign Account Tax Compliance Act (“FATCA”)
James Wall

2. Foreign Account Tax Compliance Act (“FATCA”)
FATCA was incorporated into the HIRE Act that became law on March 18, 2010 (IRC sections 1471 through 1474).
The goal of FATCA is to require non-U.S. financial institutions (broadly defined) and certain non-U.S. entities owned by U.S. persons to provide information to the IRS identifying U.S. persons invested in non-U.S. bank and financial accounts.
Requires U.S. withholding agents to perform enhanced due diligence on foreign accounts and perform withholding and reporting in addition to their current regulatory obligations under Chapter 3. Non-compliant withholding agents take secondary liability for the 30% FATCA charge.
Requires non-financial foreign entities (NFFEs) to report substantial U.S. owners or certify no U.S. ownership. Foreign payees who fail to provide the required information suffer a 30% charge on their own cross-border payments.

3. Foreign Account Tax Compliance Act (“FATCA”) (Cont’d)
FATCA withholding: Generally, 30% withholding required on certain payments made to nonparticipating foreign financial institutions (“FFIs”) and certain non-financial foreign entities (“NFFEs”). Under FATCA, to avoid being withheld upon, FFIs may register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners. Alternately, FFIs resident in countries which have signed Model 1 IGAs with the U.S. may report this information directly to local tax authorities and do not need to enter into an agreement with the IRS. These FFIs must still register and obtain a GIIN, however.
Withholdable payments are generally FDAP income. Will also include proceeds from sale of property that generates interest or dividends.
Withholding will generally not be required on payments to participating FFIs who enter into agreements with the IRS to report information about accounts held by US persons. NFFEs who report certain information about substantial US owners will also be exempt from the withholding requirement.
Under the IGA framework, many FFIs may report to local tax authorities who will pass the information along to the IRS, rather than reporting directly.

4. FATCA Implementation Overview
The IRS announced in Notice that 2014 and 2015 will be considered transition years for IRS enforcement of due diligence, reporting, and withholding requirements.
During the transition period, the IRS will consider the extent to which an entity has made a good faith effort to comply with FATCA requirements. Entities which make a good faith effort to comply will be afforded transition relief during this period.
The IRS also announced in this notice that it intends to further amend the regulations to provide that obligations held by entities and opened, executed, or issued before January 1, 2015 will be considered pre-existing obligations under the regulation grandfather rules.

5. FATCA Implementation Overview
New Final, Temporary, and Proposed Regulations released February 20, 2014 making substantive changes to Final Regulations and providing guidance on integration of FATCA with Chapter 3 and Chapter 61 withholding and information reporting.
IRS Notice Released July 12, 2013, pushes implementation timelines back a further six months.
Most Final Forms have been released, but instructions are still pending for Form W-8BEN-E.
Registration portal is now available at:
Registration should be completed by May 5, 2014 to ensure inclusion on the first list.
It is anticipated that the first list of participating FFIs will be released June 2, 2014.

6. Revised FATCA Implementation Timelines
Date
Action
January 1, 2013
FATCA effective date
January 17, 2013
Final FATCA regulations released
May 5, 2014
Last day to register for inclusion in June 2, 2014 IRS list of participating FFIs and registered deemed compliant FFIs.
June 30, 2014
Earliest effective date of an FFI agreement
July 1, 2014
Withholding agents must begin withholding on US source FDAP income for new accounts and non-participating FFIs. Transition relief is available provided entities demonstrate a good faith effort to comply.
December 31, 2014
begin withholding on preexisting entity account holders that are undocumented prima facie FFIs. Transition relief is available provided entities demonstrate a good faith effort to comply.
January 1, 2015
Begin FATCA withholding on undocumented individual preexisting high value accounts. Transition relief is available provided entities demonstrate a good faith effort to comply.
March 15, 2015
Participating FFIs required to file information reports on U.S. accounts for calendar year Transition relief is available provided entities demonstrate a good faith effort to comply.
January 1, 2016
Begin withholding on remaining undocumented preexisting accounts. Transition period ends.
January 1, 2017
Withholding on gross proceeds and foreign pass-through accounts expected to begin.

7. Forms and Registration
Registration portal is open, FFIs must register by May 5, 2014 to be included in the first list, to be released June 2, 2014.
Final Form W-8IMY released May 1, Instructions are still pending.
Final Form W-8EXP released April 1, 2014, instructions were released May 5,
Final Form W-8BEN-E released effective Feb. 1, 2014, instructions are still pending
Final Form 1042-S released Mar. 5, 2014
Final FATCA report Form 8966 released Mar. 5, 2014, instructions are still pending
Final 2014 Form 1042 released Mar. 4, 2014
Revised Form W-8BEN released Mar. 3, 2014

8. Current Focus Areas
Classify legal entities within the Expanded Affiliated Group (Model 1 IGA FFI, Model 2 IGA FFI, non-IGA FFI, NFFE, etc.)
Analyze the impact of FATCA on your company
Amend current onboarding, withholding and reporting processes to comply with FATCA
Register FFIs with the IRS by May 5, 2014

9. Who Should Prepare For FATCA Compliance?
US Withholding Agents
US Financial Institutions (USFIs)
Foreign Financial Institutions (FFIs)
Non Financial Foreign Entities (NFFEs)
US Individuals
US person that has control, receipt, custody disposal or payment of any withholdable payment
US entity that accepts deposits, hold financial assets for the account of others as a substantial part of its business, or engages (or holds itself out as being engaged) primarily in the business of investing or trading securities, commodities, partnerships, or any interests in such position
Non-US entity that accepts deposits, hold financial assets for the account of others as a substantial part of its business, or engages (or holds itself out as being engaged) primarily in the business of investing or trading securities, commodities, partnerships, or any interests in such position
Includes any foreign entity that is not FFI or is not one of the following specifically EXCEPTED entities:
Any publicly traded corporation and its corporate affiliates (more than 50% of vote and value)
Any entity organized under the laws of a possession of the US
Any foreign government, or any wholly owned agency thereof
Any international organization or any wholly owned agency or instrumentality of such
Any foreign central bank (unless acting as intermediary for clients)
Any other class of persons identified by the secretary as posing a low risk of tax evasion
US citizens, US residents (e.g., green cardholder) and non-resident aliens who
meet the substantial presence test

10. Jurisdictions With Model 1 Or 2 IGAs In Force
Model 1 IGA
Date
Model 2 IGA
Australia
Austria
Belgium
Bermuda
Canada
Chile
Cayman Islands
Japan
Costa Rica
Switzerland
Denmark
Estonia
Finland
France
Germany
Guernsey
Hungary
Ireland
Isle of Man
Italy
Jamaica
Jersey
Luxembourg
Malta
Mauritius
Mexico
Netherlands
Norway
Spain
U.K.
NOTE: More than 45 other countries are actively negotiating IGAs.

11. Issues For US Withholding Agents
FATCA for U.S. Withholding Agents

12. Issues for US Withholding Agents
Is the payment a “withholdable payment”?
Is the Item FDAP?
Is the item US source?
Is the payment grandfathered?
Is the payee an FFI and, if so, Participating? Non-participating? Deemed compliant? Excepted? IGA partner resident?
Is the payee an NFFE and, if so, is it Excepted? Active? Passive?
Are the payees exempt beneficial owners?
What type of documentation is required?

13. What Needs to be Done?
U.S. withholding agents will not be able to eliminate withholding unless:
Obtain updated Form W-8 and
Corroborate that G.I.I.N. is correct on I.R.S. webpage
To ensure inclusion on the June 2014 IRS FFI List, an FFI will need to finalize its registration by May 5, FFIs may also register on paper (i.e., by filing Form 8957), but slower processing times make this a poor choice.
Extra 6 months to register for FFIs subject to Model 1 IGAs
Will need to file Form 1042-S, Foreign Person’s Income subject to withholding

14. What Needs To Be Done?
Final instructions for 2014 form published May 6, 2014.
Must file electronically
Report Payments subject to chapter 3 & chapter 4 withholding & tax withheld
“Applicable exemption” if no FATCA withholding
Recipient’s foreign taxpayer identification number & date of birth Optional until 2017, when must report one of these two items
Due date March 15, 2015
For payments to passive NFFE’s, also file Form 8966 if there are any substantial US owners of the NFFE

15. Action For Payments to Foreign Entities
Action required: Must get a new Form W-8 BEN-E
Observations:
Much more complex (8 pages) than existing one page form
Existing Form W-8BEN is replaced by two forms: Form W-8 BEN for individuals
Form W-8 BEN-E for entities
Question: If do not get the form (or the form is not complete), is there any way to not withhold?
Recommendation: Withhold unless get fully completed form If you do not withhold then you may be personally liable for tax
Exception for pre-existing accounts of a Prima Facie FFI: Only need to get a GIIN by January 1, 2015.

16. Action for Payments to Foreign Entities
Alternate Forms that may be needed:
Form W-8IMY (Intermediary) Applies to an entity that is a QI, foreign partnership, foreign grantor trust or foreign simple trust
In many cases, attached to this form must be forms from each of the partners, beneficiaries or grantor
Form W-8ECI (effectively connected income)
Form W-8EXP (foreign governments, tax exempt organizations)

17. W-8BEN-E
Chapter 3 Status: Part I, line 4, asks for the Chapter 3 status of the Owner (11 situations)
Chapter 4 Status: Part I, line 5, is a list of possible items to be checked
31 possible classifications Need to determine: Whether you have all pertinent information AND
Whether you have to withhold since answer depends upon which box is checked
Withholding agents will likely have to help their clients by taking on the role of being a tax advisor (even though they may not be able to provide specific tax advice).

18. Withholdable Payments
US source FDAP (dividends, interest, royalties, etc.), and
Gross proceeds from sale, exchange, disposition, and redemption of assets giving rise to US source interest or dividends (after 12/31/16).
FDAP:
Same definition as under Section Includes OID paid on redemption as well as gross up payments by withholding agents out of the withholding agent’s own funds.
Corporate distributions may be both FDAP and gross proceeds from the disposition or redemption of assets giving rise to US source dividends.
Excludes amounts of interest accrued on the date of a sale of an interest bearing debt obligation if the sale occurs between two interest payment dates as well as gains from the sale of property.
US Source:
Follows definitions in Sections Interest paid by foreign branches of domestic corporations and partnerships is treated as US source FDAP.

19. Withholdable Payments
Chapter 3 exceptions are unavailable for Chapter 4 purposes
For example, bank interest and portfolio interest are generally not subject to withholding under Chapter 3, but are withholdable payments for FATCA purposes.
Exceptions: Interest or OID paid on short term obligations
Effective Connected Income
Non-Financial payments for:
Services
Use of Property
Office/equipment leases
Software licenses
Awards, prizes, etc.
Interest on AP from the acquisition of goods and services
Gross proceeds from the sale of property producing excludable US source FDAP that met one of the above exceptions will also be excluded.

20. Grandfathered Obligations
All obligations outstanding on July 1, 2014 (Note that the IRS intends to amend the regulations to extend this definition to obligations held by entities (as opposed to individuals) and outstanding before December 31, 2014).
Payments made by secured party with respect to collateral securing grandfathered obligations (even if collateral not itself a grandfathered obligation)
If secure both grandfathered and non-grandfathered obligations, must allocate by value
No equity instruments or instruments lacking stated expiration or term
Non-debt obligation outstanding – date that legally binding agreement is executed Line of credit, revolving credit facility for fixed term qualifies as of issue date if all material terms fixed (including maturity date)
Life insurance contract payable no later than upon death
Premium payments on insurance or annuity contract that is a grandfathered obligation are grandfathered

21. Grandfathered Obligations
All such obligations that may give rise to withholdable payments under Sec. 871(m) (dividend equivalent payments), or foreign passthru payments, outstanding prior to six months after such regulations are published
Exception for material modification
Withholding agent may rely on statement of issuer as to whether grandfathered
Withholding agent to treat modification as material only if actual knowledge, i.e., if it receives a disclosure statement from issuer

22. Grandfathered Obligations
Non-Financial Entities: Overview

23. Non-Financial Entity FATCA Compliance
Entities which are not considered a Foreign Financial Institution (“NFE”) will have the following compliance obligations under FATCA:
NFEs should identify any withholdable payments made by all companies in the group and identify to whom such payments are made.
Withholdable payments generally include U.S. source compensation, interest, dividends, rents, royalties, or proceeds from the sale of property giving rise to dividends or interest.
Note that the regulations provide that if a withholding agent is unable to determine the source of a payment at the time of payment, the payment must be treated as U.S. source.
Note further that payments typically free from 1441 withholding (e.g. portfolio interest) are treated as withholdable payments for FATCA purposes.

24. Non-Financial Entity FATCA Compliance
The identity and FATCA status of payees should be ascertained by collecting Forms W-9 (for U.S. payees) or the appropriate W-8 Form (for non-U.S. payees).
W-8BEN—this form should be collected from non-U.S. individuals
W-8EXP—this form should be collected from non-U.S. tax exempt payees
W-8BEN-E—this form should be collected from non-U.S. entities who are beneficial owners of the payments
W-8IMY—this form should be collected from non-U.S. passthrough entities (i.e. partnerships) and intermediaries.
U.S. partnerships should collect documentation (Forms W-8 or W-9) from all partners.
These requirements are no different from current requirements under existing U.S. withholding rules.

25. Non-Financial Entity FATCA Compliance
NFEs should also determine the FATCA status of all entities in the group and prepare the appropriate W-9 or W-8 series form for such entities. These forms should be provided to counterparties who make withholdable payments to the group.
All withholdable payments made to the group should be identified to ensure correct forms have been provided to all payors.

26. Non-Financial Entity FATCA Compliance
Foreign Financial Institutions: Overview

27. What is an FFI?
Foreign Financial Institutions (“FFIs”) are broadly defined:
Depository Institutions (Banks)
Custodial Institutions (Mutual Funds)
Specified Insurance Companies that have cash value products or annuities
Investment Entities (Hedge Funds or PE funds)
Holding Companies
Treasury Centers
By definition, investment funds organized outside the U.S. will be FFIs.

28. Exempt FFIs
FATCA regulations exempt many categories of FFIs from the requirement to register and report, such as:
Most governmental entities
Most non-profit organizations
Certain small, local financial institutions
Certain retirement entities
Unless otherwise exempt, FFIs that do not both register and agree to report face a 30% withholding tax on certain U.S.-source payments made to them.
NOTE: For withholdable payments made prior to January 1,2015, verification of a GIIN is not required with respect to payees that are reporting Model I FFIs. => Reporting Model I FFIs will have additional time beyond July 1, 2014 to register and obtain a GIIN to ensure that they are included on the IRS FFI list before January 2, Despite the additional time provided for Model 1 FFIs to register, it may be a good idea to register by the initial May 5 deadline to ensure withholding agents do not erroneously withhold on payments.

29. FFI Agreement & Registration
FFIs that enter into an agreement with the IRS to report annually on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.
FFIs are required to report annually:
US accounts maintained by U.S. individuals, U.S. entities or foreign entities with U.S. substantial owners
Payments made to NPFFIs
FFIs are required to register on the IRS portal in order to obtain a Global Intermediary Identification Number (GIIN)
FFI are required to appoint a Responsible Officer that will certify FFIs compliance with the obligations under the agreement.

30. Compliance Roadmap Identify all FFIs and NFFEs in the extended group
Determine whether any of the FFIs are in an IGA jurisdiction
Gather required information
Register all FFIs for whom registration will be required
Complete new W-8 forms for all foreign entities and provide to U.S. payors or other withholding agents
Comply with terms of FFI agreement

31. Questions about FATCA? Feel free to reach out to us: Bradley Mainguy
Christina Lee
James Wall