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Banking & Financial Services Alert

In the wake of industry-wide complaints regarding the Foreign Account Tax Compliance Act (“FATCA”) citing concerns ranging from a lack of clear guidance to the exceeding complexity of navigating the laws of different jurisdictions, the U.S. Internal Revenue Service (“IRS”) has revised the timelines for FATCA on several occasions, culminating in an implementation delay of over three years from the date of its adoption in March of 2010.

Now, with FATCA’s July 1, 2014 implementation date on the horizon, the message is clear: the time for FATCA compliance is now, if not yesterday (or the day before that). Still, the IRS has provided some additional relief, but this time, not in the form of revised timelines.

Leading up to the implementation date, the IRS has attempted to address the concerns of those foreign financial institutions (“FFIs”) located in jurisdictions known to be in advanced stages of concluding intergovernmental agreements (“IGAs”) with the IRS, but not yet brought into force by local law.

Generally, IGAs facilitate an FFIs’ FATCA compliance by, among other things, removing the potential for conflicts of national and local laws that would otherwise make it difficult for FFIs in some jurisdictions to comply with FATCA. FFIs in countries with advanced stage IGA negotiations (including those located in, among other jurisdictions, Panama, Brazil, Peru and Colombia) faced difficulties in effectively planning for FATCA compliance given the uncertainty regarding when a relevant IGA would be signed and therefore treated as being in effect for purposes of an FFIs’ (deemed) compliance with FATCA regulations.

Recognizing the practical concerns associated with this uncertainty, the IRS in April of 2014 announced that it would deem those jurisdictions which have reached agreements in substance with the U.S. and have consented to be included on the IRS’ list as having an IGA in effect.

To date, 32 jurisdictions have signed IGAs with the IRS, and 34 are treated as having an IGA in effect under the IRS’ April 2014 announcement. Still, FFIs located in these jurisdictions will need to analyze and review the relevant IGAs in order to effectively and efficiently implement their FATCA compliance programs.

More recently, the IRS appears to have offered some relief on a broader scale.

On May 2, 2014, the U.S. Treasury announced that it will approach the enforcement and administration of FATCA with a degree of leniency during 2014 and 2015. The announcement came in the midst of a mad dash by FFIs to register with the IRS by May 5, 2014, and to thereby ensure their status as registered and approved FFIs for purposes of FATCA’s withholding requirements starting on July 1, 2014. Starting on June 2, the IRS will publish a list of registered and approved FFIs and their Global Intermediary Identification Numbers (“GIIN”) every month. Withholding agents may rely on these lists to verify an FFI’s GIIN and not withhold on payments made to the FFI.

While the IRS’ May 2 announcement might allow FFIs scrambling to implement FATCA’s complex regulatory scheme before July 1, 2014 to take a deep breath, these FFIs should be sure to keep up the pace on their compliance efforts; the May 2, 2014 announcement points out that an entity that has not made “good faith efforts” to comply with FATCA requirements will not be given any relief from IRS enforcement during the transition period.

Specifically, the IRS will “take into account” whether an FFI or a withholding agent has made “reasonable efforts” to comply with FATCA. For example, the IRS will consider whether the FFI has made “good faith efforts” to ensure that each entity in its expanded affiliated group has registered with the IRS. Similarly, with respect to withholding agents, the IRS will take into account whether the withholding agent has made “reasonable efforts” to modify account opening procedures and identify the FATCA classification of payees. The IRS did not provide specific guidance regarding how an entity could demonstrate “reasonable efforts,” and therefore, FFIs, withholding agents, and other financial institutions otherwise within the scope of FATCA regulations should take note of the inherently subjective standards (and therefore, the breath of discretion) provided to the IRS by the phrases “good faith efforts” and “reasonable efforts.”

As a result, FFIs (as well as withholding agents and other financial institutions under the scope of FATCA regulations) must continue to develop and implement appropriate compliance policies and procedures in order to address and comply with their obligations under FATCA.

If you have any questions regarding FATCA, the registration process, or the policies and procedures that your institution should have in place in order to comply, please contact Mark Scheer, Greg Bader or Stephanie Quiñones.

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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.

Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 11 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Fort Lauderdale, Jacksonville, Miami, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, The Florida Keys, Vero Beach and its headquarters in West Palm Beach. With more than 160 attorneys and 200 committed support staff, Gunster is ranked among the National Law Journal’s list of the 350 largest law firms. More information about its practice areas, offices and insider’s view newsletters is available at www.gunster.com.


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