Professor William Byrnes of Texas A&M : Was the FATCA May 5th Deadline Hard or Soft?

64 IGAs Published or in Effect

2 IGAs "agreed in substance" have been added this past week, importantly Hong Kong, and to the chagrin of Turkish diplomats - Armenia. The IGA with Gibraltar has also been released and thus added to the published list. This brings the total IGAs published and treated as in effect up to 64, comprised of 27 published Model 1, 5 published Model 2, while 30 Model 1 have been agreed in substance and 2 of the Model 2 agreed.

Yet, the important US foreign direct investment jurisdictions of China and Taiwan, as well as the Middle Eastern jurisdictions of United Arab Emirates and Saudi Arabia, remain deafeningly absent from the list as of May 9. Commentators do not think that Russia, given the geopolitical tension over the Ukraine and Crimea, will enter the IGA list by the July 1 start of FATCA withholding.

148 IGAs still left to be agreed by Treasury?

The USA recognizes 195 independent states in the world, 67 dependencies of states, and has contacts with Taiwan. But not each of these 67 dependencies requires an IGA.

Approximately 16 dependencies of the 67 have both local responsibility with regard to tax policy and more than de minimis US source income exposure, such as investments in US Treasuries, for the local authorities to seek an IGA. Such dependencies include by example Bermuda, Cayman Islands, and Hong Kong. Taiwan has its own peculiar status, claiming to represent the central government of greater China (the US of course recognizes Beijing). Other dependencies, like the French departments of French Guiana, Guadeloupe, Martinique, Mayotte and Reunion, do not have local responsibility for fiscal policy and thus are protected within the IGA of the parent-state. And a host of dependencies, such as Antarctica and various atolls, have no (current) global economic relevance.

Thus, 195 recognized states and 16 economically relevant, semi-autonomous dependencies form the pool of 212 states and jurisdictions that probably could benefit from an IGA. As of May 9th, 64 have an IGA recognized by US Treasury, leaving 148 without.

What if these 148 Non-IGA countries agree an IGA after July 1?

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on the June 2nd GIIN list of participating foreign financial institutions (“PFFI”) passed May 5th. See my previous article about the May 5th deadline and consequences of its passing that applied to all FFIs in the non-IGA states and jurisdictions.

Did all the FFIs that are in the 148 countries and jurisdictions that do not have an IGA register for a GIIN?

There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration. Industry experts have put forward a reasonable range of 20,000 to 30,000 such entities that qualify as FFIs that still need to register or complete registration for a GIIN, though figures as high as 80,000 have been suggested (probably such estimates include branches in the count of financial institutions). The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks.

It is possible that on July 1st an unregistered FFI is considered non-participating (NPFFI) for purposes of FATCA withholding, but by example, on August 1st its country agrees an IGA in substance that Treasury announces on its FATCA site and the NPFFI goes back to FFI non-withholding status because of the extension related to IGAs, at least until that final December 22 deadline mentioned in Announcement 2014-1. Model 1 IGA FFIs with a GIIN are classified as "Registered Deemed-Compliant Foreign Financial Institutions" (RDCFFI) on the new W8-BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

Was the May 5th Deadline a Hard Deadline?

Maybe Not. The IRS states the following on its FATCA Registration Portal: “the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014.” (See Notice 2014-17, page 6: “FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.”)

Moreover, the IRS built in a 90 day safeguard for FFIs when a GIIN has been applied for but not yet received:

§1.1471-3(e)(3) Participating FFIs and registered deemed-compliant FFIs—(i) In general. ... A payee whose registration with the IRS as a participating FFI or a registered deemed-compliant FFI is in process but has not yet received a GIIN may provide a withholding agent with a Form W-8 claiming the chapter 4 status it applied for and writing “applied for” in the box for the GIIN. In such case, the FFI will have 90 calendar days from the date of its claim to provide the withholding agent with its GIIN and the withholding agent will have 90 calendar days from the date it receives the GIIN to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a participating FFI or registered deemed-compliant FFI. ... (emphasis added)

Do FFIs in IGA countries have an extension until December 22 for FATCA Registration?

Financial institutions (FFIs) in the 64 IGA countries have an extension to register with the IRS in order to obtain a GIIN and thus appear on the IRS' FATCA compliant list. FATCA 30% withholding for FFIs in these Model 1 IGA countries and jurisdictions only begins January 1, 2015. See Reg. § 1.1471-3(d)(4)(iv)(A):

§ 1.1471-3(d)(4)(iv) Exceptions for payments to reporting Model 1 FFIs.— (A) For payments made prior to January 1, 2015, a withholding agent may treat the payee as a reporting Model 1 FFI if it receives a withholding certificate from the payee indicating that the payee is a reporting Model 1 FFI and the country in which the payee is a reporting Model 1 FFI, regardless of whether the certificate contains a GIIN for the payee.

The situation of the last list to be published for 2014 and, more importantly, the last date to register as a Model 1 FFI to ensure being included on that list, is somewhat fluid. In the past 18 months, the IRS has several times amended its deadlines and its timelines for GIIN registration. Thus, it is at least feasible that another registration or withholding start date extension is granted before the end of 2014 (obviously Treasury will vehemently deny any more extensions on the horizon, but last year it did not expect a government shut down and this year it extended the registration date by at least 10 days weeks before the deadline of April 25).

In its January 6, 2014 Announcement 2014-1 (IRB 2014-2), the IRS stated:

Thus, while reporting Model 1 FIs will be able to register and obtain GIINs on or after January 1, 2014, they will not need to register or obtain GIINs until on or about December 22, 2014, to ensure inclusion on the IRS FFI list by January 1, 2015. (emphasis added)

However, at least one IGA country is suggesting an earlier (perhaps more prudent) date than December 22, 2014 for GIIN registration in order to be included on the IRS' last 2014 FATCA compliant list. The United Kingdom's Law Society and Institute of Chartered Accountants in May 2014 published combined guidance to members stating:

To ensure that the registration has been processed in time for inclusion on that list the last practical date for registration is 25 October 2014.

The IRS will release its final 2014 list of FATCA compliant financial institutions (thus not subject to FATCA 30% withholding on January 1, 2015 and onward) most likely on Wednesday, December 31, 2014 (according to the United Kingdom guidance quoted above), albeit it seems just as reasonable for a Friday, January 2 list to be released. Either way, the 90 day safeguard mentioned above is in place.

What Deadlines has Treasury NOT moved?

For “individual” held accounts, Treasury has neither provided an extension to the FATCA compliance requirements, nor from withholding as of July 1st. Thus, from July 1 these accounts must be characterized as “new” accounts for FATCA diligence procedures to determine whether the beneficial owner is a US person.

For accounts of ‘entities’ , while an FFI may still characterize accounts opened until December 31 as “pre-existing” accounts, Treasury did not mention extending the deadlines applicable for FATCA diligence procedures to determine whether the entity’s beneficial owner is a US person.

The pre-existing account due diligence analysis remains with three deadlines:

December 31, 2014 for prima facie FFI account holders,
June 30, 2015 for high value accounts, and
June 30, 2016 for all remaining accounts, such as “pre-existing” entity accounts).

Note that FATCA withholding does not apply to all FATCA withholdable payments immediately on July 1. FATCA has a phase-in period for withholding on certain types of payments, see Ch 13: Withholdable Payments.

LIST OF IGAs as of May 11, 2014

Model 1 IGA = 30 (in red added since my > last IGA update < of May 6)

Bahamas (4-17-2014)
Brazil (4-2-2014)
British Virgin Islands (4-2-2014)
Bulgaria (4-23-2014)
Columbia (4-23-2014)
Croatia (4-2-2014)
Curaçao (4-30-2014)
Czech Republic (4-2-2014)
Cyprus (4-22-2014)
India (4-11-2014)
Indonesia (5-4-2014)
Israel (4-28-2014)
Kosovo (4-2-2014)
Kuwait (5-1-2014)
Latvia (4-2-2014)
Liechtenstein (4-2-2014)
Lithuania (4-2-2014)
New Zealand (4-2-2014)
Panama (5-1-2014)
Peru (5-1-2014)
Poland (4-2-2014)
Portugal (4-2-2014)
Qatar (4-2-2014)
Singapore (5-5-2014)
Slovak Republic (4-11-2014)
Slovenia (4-2-2014)
South Africa (4-2-2014)
South Korea (4-2-2014)
Sweden (4-24-2014)
Romania (4-2-2014)

Model 2 IGA = 2

Armenia (5-8-2014) <— new
Hong Kong (5-9-2014) <— new

jurisdiction that have signed and entered into a formal IGA

Model 1 IGA = 27

Model 2 IGA = 5

The LexisNexis® Guide to FATCA Compliance (2^nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including information exchange protocols and systems.

If you are interested in discussing the online law degree in international taxation and financial services, then please call, skype, or email me. My office in San Diego at (619) 961-4211 or Skype with me “professorbyrnes”. Email: profbyrnes@gmail.com

Professor William Byrnes of Texas A&M

Monday, May 12, 2014

Was the FATCA May 5th Deadline Hard or Soft?

No comments:

Post a Comment