FATCA Update: IRS Gives International Banks Brief Reprieve

Non-US banks struggling to comply with the US Foreign Account Tax Compliance Act (FATCA) – which requires foreign financial institutions to provide US authorities with information on accounts held by US citizens or face substantial penalties – just got an unexpected break from the Treasury Department.

On July 12, 2013, the Internal Revenue Service announced a six-month delay in the start of FATCA withholding and reporting requirements. For your convenience, at look at key changes:

Withholding on US Source Income

“Withholding on interest, dividends, and other types of U.S. source income potentially subject to FATCA begins on July 1, 2014. (Previously, withholding was scheduled to begin with respect to payments of such income on or after January 1, 2014.) FATCA withholding on gross proceeds and ‘passthru’ payments remains unchanged, applying to such payments made on or after January 1, 2017 at the earliest.” (Morgan Lewis)

Participating Foreign Financial Institution Reports

“[The] due date for first PFFI Report of US Accounts [is] March 15, 2015 for 2014 accounts identified by December 31, 2014. A similar rule will apply to [intergovernmental agreements] as well. There will be no reporting of US Accounts for the 2013 calendar year.” (DLA Piper)

New Account Procedures

“Very broadly, the deadline for withholding agents to implement procedures for opening new accounts and identify U.S. account holders has been delayed six months to July 1, 2014 (or for a PFFI, the effective date of its FFI agreement, if later). The deadline for completing due diligence on certain pre-existing obligations also generally has been delayed by six months.” (Pepper Hamilton)

Registration on the IRS “FATCA Portal”

“The Notice also provides details on the IRS’s FATCA registration website portal, which is now projected to open August 19, 2013. According to the Notice, a financial institution will be able to use the portal to input required information for itself and its affiliates. Information entered into the portal from its opening until the end of 2013, however, will not be regarded as a final submission. Instead, financial institutions are meant to use this time to ‘get familiar with the registration process, to input preliminary information, and to refine that information.’ On or after January 1, 2014, financial institutions will be expected to finalize their registration information.” (Morrison & Foerster)

Global Intermediary Identification Numbers (GIINs)

“The Notice announces that GIINs (which are the identification numbers that will be assigned by the IRS to FFIs to be used in connection with FATCA compliance and reporting) are expected to be issued by the IRS beginning in 2014, rather than in 2013.” (Proskauer)

Extension of Key Certificates and Agreements

“IRS Forms W-8 that are scheduled to expire on December 31, 2013 and are used for purposes of non-FATCA withholding will remain valid until June 30, 2014, so as to coincide with the extended start date for FATCA withholding. In addition, all ‘qualified intermediary,’ ‘withholding partnership,’ and ‘withholding trust’ agreements that are set to expire on December 31, 2013 are now extended to June 30, 2014.” (Morgan Lewis)

Cut-off Date for “Grandfathered Obligations”

“Obligations will be treated as ‘grandfathered obligations’ (and therefore generally not subject to FATCA withholding) if such obligations are outstanding on July 1, 2014, as compared to the previous cut-off date of January 1, 2014. For this purpose, an ‘obligation’ generally includes legally binding debt agreements or instruments that are not treated as equity for U.S. tax purposes, and which satisfy certain other conditions.” (Proskauer)

The updates:

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