QI & FATCA News
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On November 14, 2012 the US Treasury has released the Model II IGA. Currently both Switzerland and Japan have expressed intent to enter into an intergovernmental agreement for the cooperative implementation of FATCA based on the Model II IGA.
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On October 24, 2012 the IRS released Announcement 2012-42 which aims to synchronize the due diligence deadlines and FATCA withholding phase-in under the forthcoming final FATCA regulations with the dates under the UK/US FATCA IGA (and, presumably, the other IGAs under negotiation).
FFI Agreement
Although the IRS has yet to publish a draft FFI Agreement, it is still expected that the IRS will have systems in place in 2013 to facilitate FFI registration and FFI Agreements. Announcement 2012-42 extends the effective date of the initial FFI Agreements and all FFI Agreements entered in 2013 will become effective on January 1, 2014.
New Account Documentation Procedures and Pre-existing Account Reference Dates
Announcement 2012-42 states that FFIs that enter FFI Agreements in 2013 will be required to put in place procedures to ensure that accounts opened from January 1, 2014 (‘new accounts') are documented according to the FATCA requirements. Consequently, ‘pre-existing accounts' will include those accounts opened prior to January 1, 2014. For FFI Agreements entered in 2014 and thereafter, ‘pre-existing accounts' and ‘new accounts' will be determined by reference to the effective date of the FFI's FFI Agreement.
Reporting on US Accounts
Reporting account balance and other information to the IRS on US accounts for 2013 and 2014 will be required by March 31, 2015. For 2015 and succeeding years the deadline will be March 31 of the following year.
Due Diligence Deadlines and FATCA Withholding
Announcement 2012-42 confirms that FATCA withholding on passthru payments will be required upon the expiry of the respective due diligence deadline. The announcement provides an additional two years' extension before FATCA withholding applies to gross proceeds. Thus FATCA withholding on passthru payments made through December 31, 2016 will apply only to passthru payments consisting of US source investment income (e.g., dividends, interest, etc.) and from January 1, 2017 will extend to gross proceeds from the sale or disposition of US securities.
The due diligence deadlines and withholding beginning dates are determined by the type of account holder according to the FATCA schema. The following summary assumes an FFI Agreement entered by December 31, 2013:
| Entity Accounts - Prima Facie FFIs | ||
| Account review to identify and document prima facie FFIs: | 30 June 2014 | |
| FATCA withholding begins for prima facie FFIs not documented as PFFIs or other compliant FFIs (DCFFI, partner jurisdiction FFI, exempt FFI, etc.): | 1 July 2014 | |
| Entity Accounts - All Others | ||
| Account review to document all non-prima facie FFI entity accounts: | 31 December 2015 | |
| FATCA withholding begins on all non-compliant entity accounts (presumed held by NPFFIs): | 1 January 2016 | |
| Individual Accounts – High Value Accounts | ||
| Account review for all high value individual accounts (balance or value of more than US$1,000,000): | 31 December 2014 | |
| FATCA withholding begins for recalcitrant high value individual accounts: | 1 January 2015 | |
| Individual Accounts – Other than High Value Accounts | ||
| Account review deadline for all individual accounts other than high value accounts: | 31 December 2015 | |
| FATCA withholding begins for all recalcitrant individual accounts: | 1 January 2016 | |
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On September 12, 2012, the United Kingdom and United States signed a bilateral agreement for a cooperative implementation of FATCA. The agreement is based on the FATCA Model IGA released in July (Model I IGA). Pursuant to the IGA the UK will enact tax legislation that will require UK resident FFIs to perform FATCA due diligence procedures to identify US accounts and perform reporting on accounts held by PFFIs, recalcitrant account and US accounts. UK resident FFIs will be deemed to be in compliance with chapter 4 and will not need to enter an FFI agreement.
UK FFIs that are covered by the IGA include UK resident financial institutions as well as branches of non-UK FFIs that are located in the UK. Annex I of the IGA sets forth the due diligence procedures applicable to UK FFIs, which largely follows the procedures set forth in the proposed FATCA regulations. Annex II lists exempt UK entities, UK financial institutions that are exempt from reporting and certain exempt financial products. UK FFIs will be required to report US accounts to the HMRC rather than the IRS, and this information will be automatically exchanged with the US tax authorities. However, UK FFIs will not be required to close accounts held by non-compliant US clients (e.g., US clients that fail to provide a valid Form W-9).
The deadlines to perform FATCA due diligence under the IGA differ from those provided in the proposed FATCA regulations. Consequently, the IRS has announced that it will synchronize the deadlines in the final FATCA regulations to match those of the UK/US FATCA IGA. See IRS Announcement 2012-42 regarding the due diligence deadlines under the forth coming final FATCA regulations.
UK FFIs will not be required to impose FATCA withholding on accounts held by recalcitrant clients and NPFFIs, however they will be required to provide upstream custodians with sufficient information (by way of a withholding statement) such that FATCA withholding can be applied at the custodian level. This necessarily will require that UK FFIs place US assets held for recalcitrant and PFFI clients in a segregated account.
We understand that the IGAs being negotiated with the remaining FATCA partners (France, Germany, Italy and Spain) are also based on the Model I IGA and therefore the UK/US IGA provides a good indication of what we can expect in these countries.
