Today, the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) issued Notice 2013-43 (the “Notice”), which provides: (i) revised timelines for implementation of sections 1471 through 1474 of the Internal Revenue Code, commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”); and (ii) additional guidance concerning the treatment of financial institutions located in jurisdictions that have signed intergovernmental agreements (“IGAs”) for the implementation of FATCA but have not yet brought those IGAs into force. Generally, the Notice provides a six (6) month extension to several, but not all, key compliance dates under FATCA.
The timeline revisions include the postponement of the opening of the FATCA registration portal until August 19, 2013 (instead of the previously projected July 15, 2013 date). With respect to the significant uncertainty surrounding IGAs, the Notice stipulates that a jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect. In general, Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA on the Treasury’s website.
Treasury and the IRS intend to amend the FATCA regulations to adopt the aforementioned timeline revisions and ancillary guidance. The following is a general summary of some of the revisions to the FATCA implementation timeline (as further discussed in the Notice):
| Withholding |
General FATCA withholding obligations for withholding agents on payees that are foreign financial institutions (“FFIs”) or nonfinancial foreign entities (“NFFEs”) with respect to obligations that are not grandfathered obligations will be required on withholdable payments made after June 30, 2014, subject to certain limited exceptions.The definition of grandfathered obligation will be revised to include obligations outstanding on July 1, 2014 (and associated collateral).The Notice does not affect the timing provided in the final regulations for withholding on gross proceeds, passthru payments, and payments of U.S. source FDAP with respect to offshore obligations by persons not acting in an intermediary capacity. |
| New Account Opening Procedures and the Definition of Preexisting Obligations |
Withholding agents generally will be required to implement new account opening procedures by July 1, 2014, or, in the case of a participating FFI (“PFFI”), by the later of July 1, 2014 or the effective date of its FFI agreement.As a result, the definition of the term “preexisting obligation” has been revised accordingly.Treasury intends to include a similar change to the definition of the term “Preexisting Account” in both model IGAs. Thus, it is expected that future IGAs will define the term “Preexisting Account” to mean a Financial Account maintained as of June 30, 2014. |
| Due Diligence on Preexisting Obligations |
The FFI Agreement of a PFFI that registers and receives a GIIN from the IRS on or before June 30, 2014, will have an effective date of June 30, 2014.For withholding agents other than PFFIs, the deadlines for completing due diligence on preexisting obligations will be postponed by six (6) months.Account balance or value will be measured initially as of June 30, 2014, for purposes of determining whether an account is exempt from review, subject only to an electronic search for indicia, or subject to enhanced review.An account with a balance or value that was initially $1,000,000 or below, and with respect to which there has been no change in circumstances, will not be subject to enhanced review unless the account balance or value exceeds $1,000,000 as of the end of 2015 or any subsequent calendar year.Treasury intends to provide for a similar six-month delay in the due diligence procedures included in Annex I of IGAs concluded after the issuance of this Notice. |
| First Report of a PFFI with respect to U.S. Accounts |
PFFI will be required to file information reports on its U.S. accounts with respect to the 2014 calendar year no later than March 31, 2015. |
| Registration |
The FATCA registration website is projected to be accessible to financial institutions on August 19, 2013. Other key dates for registration, however, will be extended by six months. |
| Expiration of withholding certificates and documentary evidence |
Withholding certificates and documentary evidence that would otherwise expire on December 31, 2013, will expire instead on June 30, 2014, unless a change in circumstances occurs. |
| Extension of Expiring QI, WP, and WT Agreements |
All QI, WP, or WT agreements that would otherwise expire on December 31, 2013, will be automatically extended until June 30, 2014. |
As a result of the Notice, financial institutions will need to update and revise their FATCA compliance plans. If you have any questions regarding FATCA and the legal implications of the Notice, please contact Andres A. Fernandez or Gabriel Caballero.
For a copy of the Notice, please click on the following link: http://www.irs.gov/pub/irs-drop/n-13-43.pdf
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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.
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