IRS opens online FATCA registration system for financial institutions, issues related guidance

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1 22 August 2013 IRS opens online FATCA registration system for financial institutions, issues related guidance Executive summary On 19 August 2013, the IRS announced the opening of the online registration system for financial institutions that need to register with the IRS under the Foreign Account Tax Compliance Act (FATCA) provisions. At the same time, the IRS also issued the final version of the Form 8957 (Foreign Account Tax Compliance Act Registration) along with its accompanying instructions, and a detailed FATCA Registration Online User Guide (User Guide) that provides step-by-step instructions on the registration process for financial institutions. See these releases and a link to the registration system. A draft version of the form which will be used for reporting information required under FATCA, Form 8966, was issued on 15 August Note that, as indicated in Notice (see, Notice revises timelines and provides other guidance on FATCA provisions, dated 15 July 2013), no information entered into the online registration system will be considered final before 1 January 2014, and no foreign financial institution (FFI) registrations may actually be submitted until 1 January 2014, although information may be saved on the system prior to that date. The IRS will electronically post the first IRS FFI List by 2 June 2014, and will update the list on a monthly basis thereafter. To ensure inclusion in the June 2014 IRS FFI List, an FFI will need to finalize its registration by 25 April 2014.

2 Detailed discussion The FATCA rules require withholding agents to withhold tax on certain withholdable payments made to FFIs that do not agree to comply with FATCA s requirements, which include reporting information to the IRS (directly or indirectly via an intergovernmental agreement (IGA)) about their US accounts, including accounts held by certain nonfinancial foreign entities (NFFEs) with substantial US owners. To demonstrate their status to withholding agents and tax administrators as FATCA-compliant entities, FFIs register their status with the IRS and obtain a Global Intermediary Identification Number (GIIN). While registering via a paper Form 8957 is still an option for FFIs, the IRS is strongly encouraging online registration. The User Guide notes that generally, all FFIs, other than exempt beneficial owners or certified deemed compliant FFIs that are part of the same expanded affiliated group (EAG), must register with the IRS. During the online registration process, the system will allow FFIs to appoint up to five points of contact (POCs) to perform registration tasks, will send out notifications to these POCs when the FFI s status changes, and will issue a specific GIIN that corresponds to the FFI s status. The system also includes a section for qualified intermediaries (QIs), withholding foreign partnerships (WPs), and withholding foreign trusts (WTs) that wish to renew their QI, WP and WT agreements with the IRS. The following entities are eligible to register (on behalf of themselves and their branches) for the purposes below, as well as to obtain a GIIN (unless the entity is a Limited FFI or Limited Branch): An FFI, or foreign branch of an FFI or US Financial Institution (USFI), that is treated as a Reporting Financial Institution (FI) under a Model 1 IGA may use the system to authorize one or more POCs to receive information related to registration on the FI s behalf. A POC is an individual authorized to receive FATCArelated information from the IRS and to take certain FATCA-related actions on behalf of the FFI. Note that the responsible officer (RO) of an FFI will automatically be a POC for that FFI. An FFI, or foreign branch of an FFI, that is treated as a Reporting FI under a Model 2 IGA may use the system to authorize one or more POCs to receive information related to registration on the FI s behalf, and confirm that it will comply with the terms of an FFI Agreement, as modified by the applicable Model 2 IGA. An FFI, or branch of an FFI, that is not covered by an IGA may use the system to enter into an FFI Agreement to be treated as a participating FFI (PFFI), to agree to meet the requirements to be treated as a registered deemedcompliant FFI (RDCFFI), or to confirm that it will comply with the terms applicable to a Limited FFI or a Limited Branch. An FI seeking to act as a Sponsoring Entity may use the system to agree to perform the due diligence, reporting, and withholding responsibilities on behalf of one or more sponsored FFIs. An FI, including a foreign branch of a USFI, currently acting as a QI, WP, or WT may use the system to renew its QI, WP, or WT Agreement. A US financial institution (USFI) wishing to act as a Lead FI may use the system to register its Member FIs, and to identify itself as a Lead FI (note that a foreign branch of a USFI located in a Model 2 IGA jurisdiction does not need to register unless it needs to renew its QI, WP, or WT Agreement). An FI may register as a Single, Lead, or Member FI or Sponsoring Entity, and will be asked to complete different registration questions depending on which of these categories it chooses. A Single FI is an FI that does not have any Member FIs and that is registering for PFFI or RDFFI status for itself or one or more of its branches. A Single FI may also include a foreign branch of a USFI treated as a Reporting FI under a Model 1 IGA or that has in effect a QI Agreement. A Lead FI means a USFI, FFI, or a Compliance FI that will initiate the FATCA registration process for each of its Member FIs that is a PFFI, RDCFFI, or Limited FFI and that is authorized to carry 2

3 out most aspects of its Members FATCA Registrations. A Lead FI is not required to act as a Lead FI for all Member FIs within an EAG. Thus, an EAG may include more than one Lead FI that will carry out FATCA Registration for a group of its Member FIs. A Lead FI will be provided the rights to manage the online account for its Member FIs. An FFI seeking to act as a Lead FI cannot have Limited FFI status in its country of residence. A Member FI is an FFI that is registering as a member of an EAG that is not acting as a Lead FI and that is registering as a PFFI, RDCFFI, or Limited FFI. For purposes of registration, a Member FI may also include a foreign branch of a USFI that is treated as a Reporting FI under a Model 1 IGA, or that is renewing its QI Agreement. A Member FI will need to obtain its FATCA ID from its Lead FI. The User Guide notes that the FATCA ID is used to identify the Member FI for purposes of registration and is not the same number as the GIIN. A GIIN is issued to FIs, other than Limited FFIs or Limited Branches, after the FATCA Registration is submitted and approved. A Sponsoring Entity is an entity that will perform the due diligence, withholding, and reporting obligations of one or more sponsored investment entities or controlled foreign corporations (Sponsored FFIs). Note that the User Guide does not provide detailed information about how a Sponsoring Entity is to register a Sponsored FFI, but indicates that these instructions will be posted on the IRS website at a later date. Implications The opening of the online registration system is a key development for FFIs, USFIs, and other entities that will have registration, withholding, due diligence or reporting obligations under FATCA. The User Guide issued in conjunction with the system also clarifies certain issues, such as the fact that all FFIs are generally expected to register with the IRS (except exempt beneficial owners or certain certified deemed compliant FFIs), and all FFIs are generally expected to appoint a responsible officer (including Model 1 FFIs) as part of this registration process. It is important to note that any information entered into the online system through 31 December 2013 will not be considered final, and that the IRS expects users to use the remainder of 2013 to become familiar with the FATCA registration website, to input preliminary information, and to refine that information. The User Guide indicates that the system can accommodate changes in an FFI s status caused by the signing of new IGAs, and that this and other information can be edited after an FFI s registration is submitted (i.e., after 1 January 2014). The IRS has indicated a strong preference for online FFI registration, and accordingly has dedicated considerable resources to the online registration system s development. However, because of the large number of persons interested in familiarizing themselves with how the system operates, it is reasonable to expect temporary delays or other issues during the first few weeks it is open; this should be taken into consideration when determining when and how much information to enter into the system during this preliminary period. There are several yet-to-beissued guidance items that are necessary for withholding agents, FFIs and others affected by FATCA to complete their FATCA implementation programs, including: Conforming regulations under chapters 3 and 4 Technical corrections to the final FATCA regulations Substantive corrections to the final FATCA regulations Model FFI agreement Final versions of the revised Forms W-8 and W-9 and instructions Final version of the Form 8966, FATCA Report, and instructions Final versions of the 2014 Forms 1042 and 1042-S and instructions 3

4 For additional information with respect to this Alert, please contact the following: Ernst & Young LLP, International Tax Services, Washington, DC Barbara Angus Julia Tonkovich Ernst & Young LLP, International Tax Services, New York David Jensen Justin O Brien justin.obrien@ey.com Ernst & Young LLP (UK), International Tax Services, London Anthony Calabrese acalabrese@uk.ey.com Ernst & Young LLP, Capital Markets, Washington, DC Maria Murphy maria.murphy@ey.com Deborah Pfleiger deborah.pfleiger@ey.com 4

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