April 10, 2014
The IRS and U.S. Treasury have introduced new required tax information reporting procedures in response to the Foreign Account Tax Compliance Act (FATCA). Additional tax withholding may apply to firms and their clients that do not comply with FATCA and its associated regulations. FATCA is effective July 1, 2014. While a number of details are currently available, additional updates from the IRS and U.S. Treasury are expected. For the latest news, please refer to the IRS FATCA website or the U.S. Treasury FATCA website.
At the heart of FATCA lies increased information sharing and reporting. As FATCA regulations are finalized, this is prompting many changes in the U.S. tax reporting and withholding process.
New Model 1 and 2 Intergovernmental Agreements (IGAs) Between the U.S. and Foreign Countries
Model IGAs have been established to assist foreign financial institutions (FFIs) in complying with FATCA. There are two basic types of IGAs, Model 1 and Model 2. This list of effective IGAs can be found on the U.S. Treasury FATCA website, or for additional details, view IRS Announcement 2014-17 published on April 2, 2014.
Reporting Model 1 FFIs must register with the IRS as a registered deemed compliant FFI to obtain a global intermediary identification number (GIIN). These firms report to their countries' own tax authority, not to the IRS, and that tax authority exchanges information with the IRS as outlined in the IGA and other governing instruments between the U.S. and the foreign country. FFIs subject to Model 2 IGAs register as Participating FFIs (PFFIs) with the IRS. They report directly to the IRS, pursuant to the terms of the FFI agreement, as modified by the Model 2 IGA that applies to the FFI.
For more information about registration, please refer to IRS Publication 5118, which is a FATCA User Guide, and IRS Form 8957 instructions, which are available on the IRS Forms and Publications website.
New Tax Form Versions
The IRS has introduced new fields to existing tax forms, as well as a new form. These communicate required FATCA details and enable individuals and entities to certify their compliance with the new regulations. They are identified with a February 2014 revision date with the indication—"Rev. February 2014"—to distinguish them from earlier versions. These can be found on the IRS Forms and Publications website.
New versions of other existing forms in the W-8 series, including Forms W-8IMY and W-8EXP, are expected to be released soon.
New Compliance Responsibilities
If a firm is registering as a PFFI, it is responsible for creating an enhanced compliance program in light of new FATCA regulations. This includes the appointment of a "Responsible Officer" who will make ongoing certifications of FATCA compliance to the IRS. The Responsible Officer requirement may involve creating new operational policies, controls and infrastructure.
FATCA Milestones at a Glance
A summary of important FATCA milestones and next steps appears below.
Registration (by financial institutions)
May 5, 2014
Final day to register for guaranteed inclusion on first registered FFI list.
June 2, 2014
First registered FFI list expected to be published by the IRS.
June 3, 2014
Final day to register for inclusion on the July 1, 2014 registered FFI list.
July 1, 2014
FATCA withholding requirements go into effect for new accounts. Second registered FFI list expected to be published by the IRS—updated monthly thereafter.
Exception: FFIs in Model 1 IGA jurisdictions have more time to register and be listed, since withholding agents are not required to confirm GIINs for these financial institutions before January 1, 2015.
Reporting (by financial institutions) – When to Report
March 31, 2015
FFIs in non-IGA jurisdictions and FFIs in Model 2 IGA jurisdictions
September 30, 2015
FFIs in Model 1 IGA jurisdictions
What to Report (with respect to 2014):
PFFIs must file the new IRS Form 8966 (FATCA Report).
Other financial institutions may be required to file this form as well. This will be clarified by the final instructions, which have not yet been issued.
1. Account holder's name*
2. Account holder's U.S. taxpayer identification number (TIN)*
3. Account holder's address*
4. Account number
5. Account balance or value
6. For accounts held by recalcitrant/non-consenting account holders: report aggregate number and balance or value
* For passive, non-financial foreign entities, only the name(s), TIN(s) and address(es) of any substantial U.S. owners should be reported.