The IRS recently issued Notice 2013-69 (the "Notice"), providing additional guidance on the implementation of FATCA. The Notice addresses foreign financial institutions ("FFI") entering into an FFI agreement with the IRS to be treated as participating FFIs under section 1471(b) and Treasury regulation § 1.1471-4. The Notice contains guidance on complying with FFI agreements to FFIs and FFI branches treated as reporting financial institutions under a Model 2 intergovernmental agreement ("IGA"). Finally, the Notice contains information on the requirements for FFIs to be exempt from withholding, general responsibilities of participating FFIs and reporting Model 2 FFIs, intended updates to regulations and forms, and procedures for FFIs to register for participating FFI or reporting Model 2 FFI status.1
The FFI agreement will generally be used for FFIs under the Model 2 IGA. The Model 2 IGA provides for FFI reporting directly to the IRS. This is in contrast with the Model 1 IGA that relies on local tax authorities for reporting purposes. Compliance with the reporting rules is important because an FFI that enters into an FFI agreement with the IRS and complies with its terms will generally be treated as a participating FFI that is not subject to FATCA withholding on withholdable payments it receives. Requirements for FFI compliance are described in Treasury Regulation § 1.1471-4, and are incorporated into the draft FFI agreement included with the Notice. These FFI requirements include due diligence and documentation of US accountholders and payees, withholding obligations and information reporting to the IRS. The draft agreement also describes procedural matters for compliance with these requirements, such as refund requests. The IRS intends to finalize the agreement by the end of 2013.
The Notice confirms that any branch of an FFI that is eligible to comply with the terms can enter into an FFI agreement, and branches that cannot do so will be treated as non-participating and subject to FATCA withholding. FFIs that register at the FATCA registration website will receive a global intermediary identification number ("GIIN") to identify themselves to withholding agents. As necessary, relevant IRS forms will be updated to address the guidance in the Notice.
The Treasury Department also intends to issue regulations in the future with respect to FATCA and FFIs in particular. These regulations will provide that FATCA reporting under an FFI agreement will generally satisfy chapter 61 (Form 1099) reporting for US payees (or presumed US payees), except when backup withholding applies. Therefore, in many cases the participating FFI will not be required to file duplicate reports for the same payee. Moreover, the regulations will provide that backup withholding will not apply to a reportable payment if a participating FFI has already withheld under FATCA. In the case of recalcitrant accountholders who are known US persons, the participating FFI would be able to elect to satisfy its FATCA obligation by withholding under the backup withholding rules.
The intended future regulations would also modify transitional reporting requirements for 2015 and 2016 for payments to non-participating FFIs. While the current rules require reporting of the aggregate amount of foreign reportable amounts paid to non-participating FFIs (even if the payments are not associated with a financial account), the relaxed transitional rules will require reporting only for amounts paid with respect to a financial account of the non-participating FFI. Additionally, FFIs will not have to report accounts held by passive nonfinancial foreign entities ("NFFEs") if the NFFEs elect to directly report to the IRS regarding their US ownership instead of providing this information to the FFI (or withholding agent). These "direct reporting" NFFEs will be required to register with the IRS, agree to comply with information reporting obligations and obtain a GIIN to identify themselves. Under the intended regulations, NFFEs can be sponsored by another entity that will report to the IRS for the sponsored NFFE. In the case of NFFEs that are qualified intermediaries, the qualified intermediary agreements will be updated to include information reporting to the IRS regarding US owners in addition to the entity's other obligations as a withholding agent.
Footnotes
1 Notice 2013-69.
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