Foreign financial institutions, such as offshore funds, should register with the IRS by May 5 and review new and revised IRS forms.
The July 1 start date for Foreign Account Tax Compliance Act (FATCA) withholding on certain payments of U.S. source income is fast approaching, and no extensions of that start date are on the horizon. In this regard, foreign financial institutions (FFIs), such as non-U.S. investment funds, should consider the below FATCA compliance steps and take immediate action to prepare for FATCA.
1. Register with the Internal Revenue Service and get a Global Intermediary Identification Number by May 5.
2. Review Forms W-8BEN-E and W-8IMY.
3. Keep a tax adviser on speed dial.
Tax advisers can help FFIs navigate the confusion that will likely occur when FATCA goes into place. Because the IRS FATCA guidance to date is unclear and inconsistent in many respects (with new guidance appearing frequently, including through various Web-only FAQs and other releases), FFIs should consult with their advisers to obtain counsel on how to complete the registration process and to answer questions regarding the new Form W-8BEN-E and revised Form W-8IMY.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Daniel A. Nelson
Richard S. Zarin
Barton W.S. Bassett
William P. Zimmerman
Richard C. LaFalce
For a discussion of FATCA prior to the promulgation of the final FATCA regulations, see our October 26, 2012 LawFlash, “Revisions to FATCA Implementation,” available here; our March 5, 2012 LawFlash, “FATCA Proposed Regulations Unveiled by Treasury,” available here; and our August 26, 2011 LawFlash, “Recent IRS Notices Provide Supplemental FATCA Guidance and Phased-in Implementation,” available here.
. Various IRS officials have informally noted that the IRS will not extend the July 1 start of FATCA withholding on certain types of U.S. source income, such as dividends and interest.
. The IRS will be publishing FFI lists every month following the First List. The second FFI list will be published on July 1, 2014, and the deadline to be included on such second list is June 3. However, our view is that it is preferable for an FFI to be included on the First List so as to avoid any inadvertent withholding that might occur shortly after July 1, 2014.
. The IRS has provided in guidance that FFIs eligible for the benefit of IGAs do not need to register and obtain a GIIN prior to January 1, 2015. In practice, however, a withholding agent may be unwilling to rely on this guidance after July 1, 2014. Also, note that the IRS has recently expanded the list of jurisdictions deemed to have entered into IGAs with the United States to include jurisdictions that have not yet executed such agreements, with the list now including 48 countries. For more information, view IRS Announcement 2014-17 here.
. The FATCA responsible officer or “FRO” is generally responsible for overseeing an FFI’s FATCA compliance program. FROs in certain IGA jurisdictions may have different obligations than those of FFIs that enter into an FFI agreement directly with the IRS. FFIs may appoint an internal officer to serve as FRO. We are also aware that third-party FATCA service providers include FRO duties as part of their service package.
Note also that, by registering, an FFI located in a non-IGA jurisdiction or “Model 2 IGA” jurisdiction will be formally entering into an FFI agreement with the IRS to perform FATCA-related withholding and reporting directly to the IRS. For a complete list of the jurisdictions that have either signed an IGA or have an IGA deemed to be in effect (by Model type) as of the date hereof, visit here.