United States: Upcoming July FATCA Deadlines

Last Updated: June 3 2014
Article by Ryan Roberts

The July 1, 2014 deadline for the implementation of certain requirements of foreign financial institutions and certain non-financial foreign entities under the Foreign Account Tax Compliance Act ("FATCA") is quickly approaching.

FATCA Overview

FATCA, the offshore account information reporting and withholding regime codified in sections 1471 through 1474 of the Internal Revenue Code and the Treasury Regulations promulgated thereunder, generally requires US financial institutions ("USFIs") and other withholding agents to withhold 30 percent of payments made to (1) foreign financial institutions ("FFIs") that have not agreed to report information with respect to their US person account-holders to the IRS and (2) non-financial foreign entities ("NFFEs") that are the beneficial owners of the payments and that do not report information with respect to their substantial U.S. owners to the withholding agent.1

In order to be compliant with FATCA and avoid being withheld upon, participating FFIs ("PFFIs") must register with the IRS and enter into an agreement with the IRS (an "FFI agreement"), meeting the requirements of section 1471(b) and Treasury Regulation section 1.1471-4, to report certain information about their US accounts. Accordingly, PFFIs must generally agree to (1) comply with due diligence procedures in order to identify US account-holders, (2) report information on US account-holders to the IRS on an annual basis, (3) comply with requests by the IRS for additional information, (4) obtain waivers from each US account-holder of domestic law that would otherwise prevent the disclosure of such information, and (5) act as a withholding agent on certain foreign pass thru payments made to recalcitrant account holders2 and nonparticipating FFIs ("NPPIs"). FFIs in jurisdictions that have entered into an intergovernmental agreement ("IGA") with the United States will generally be deemed FATCA compliant if they comply with the requirements of the IGA and register accordingly and will not need to enter into a separate FFI agreement with the IRS ("deemed-compliant FFIs").3

In order to be compliant with FATCA and avoid being withheld upon, NFFEs must report identifying information about their substantial US owners or certify that they have no substantial US owners to the withholding agent.

FATCA Withholding "Go-Live" Date

Pursuant to IRS Notice 2013-43, on July 1, 2014, USFIs and other withholding agents4 will be required to start withholding on payments of US source dividends, interest, rents, salaries, wages, premiums, annuities and other types of fixed and determinable annual payments ("withholdable payments") made after June 30, 2014 to NPFFIs and NFFEs that fail to meet the reporting requirement unless the payments are made with respect to debt obligations outstanding as of July 1, 2014.5

FFI Registration Effective Dates

Registering as a PFFI or deemed-compliant FFI with the IRS is done primarily through the IRS website.6 Once registration is finalized, FFIs will receive a notice that the registration has been accepted and will be issued a Global Intermediary Identification Number ("GIIN"), to be used for reporting purposes and to identify the status of the FFI to withholding agents. The IRS will post the first list of registered FFIs on June 2, 2014, electronically, on the IRS website and is expected to update the list on a monthly basis. In order to be included on the first registered FFI list, FFIs must register by May 5, 2014. However, FFIs that miss the May 5 registration date can still make it onto the July 1, 2014 list if registration is finalized by June 3, 2014.7 A withholding agent generally must obtain an FFI's GIIN and confirm that the FFI is on the list of registered FFIs in order to avoid withholding.

FFI Agreement Effective Dates

FFI agreements entered into before June 30, 2014 between the IRS and PFFIs that have registered and received a GIIN before June 30, 2014 will have an effective date as of June 30, 2014.

Beginning on July 1, 2014, USFIs and other withholding agents will generally be required to implement new account opening procedures to determine whether such accounts are to be treated as US accounts, accounts of PFFIs, accounts of NPFFIs, accounts of deemed-compliant FFIs, accounts of NFFEs, or other types of account classifications under FATCA. In the case of PFFIs, withholding agents will be required to implement new account opening procedures as of the effective date of its FFI agreement.


1. Under sections 1471(d)(4) and (5) and Treasury Regulation sections 1.1471-5(d) and (e), FFIs include foreign entities that (1) accept deposits in the ordinary course of a banking or similar business; (2) hold financial assets for the account of others as a substantial part of their business; (3) are engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, and derivatives; (4) are insurance companies; or (5) are holding companies and treasury centers for the other types of FFIs or formed in connection with a hedge fund, levered buyout fund, venture capital fund, private equity fund, or other collective investment vehicle. Under Treasury Regulation 1.1471-1(a)(74), a non-US entity that is not an FFI is an NFFE.

2. Under section 1471(d)(7), "passthru payments" are any payments to the extent attributable to a withholdable payment. Under section 1471(d)(1)(6), "recalcitrant account holders" are those that do not comply with requests for information.

3. Two categories of IGAs exist between the US and foreign jurisdictions: "Model 1" agreements, which generally require the FFI to report required information to its domestic jurisdiction which in turn reports the required information to the IRS, and "Model 2" agreements which generally require the FFI to report required information directly to the IRS. The list of jurisdictions that have entered into either type of IGA can be found at http://www.treasury.gov/resource-center/tax-policy/treaties/pages/fatca-archive.aspx.

4. Under section 1474 and Treasury Regulation 1.1473-1(d), any person in whatever capacity having control, receipt, custody, disposal, or payment of any "withholdable payment" is a withholding agent for this purpose. Additionally, PFFIs having control, receipt, custody, disposal or payment of a "passthru payment" are also withholding agents.

5. Debt obligations, including debt instruments, lines of credit, derivatives transactions, certain insurance contracts and certain annuity contracts, among other things, outstanding as of July 1, 2014 are considered "grandfathered obligations" for purposes of FATCA, and payments of interest on such debt obligations are not subject to the FATCA withholding requirements.

6. The online FATCA registration system, commonly referred to as the "Portal," is located at http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA. The IRS will also accept paper registrations, albeit with slower processing times.

7. Ann. 2014-17.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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