Foreign Account Tax Compliance Act Steps to Compliance

Transcription

1 The Science of Finance Foreign Account Tax Compliance Act Steps to Compliance Grand Caymans \ January 2014

2 FATCA Steps to Compliance AGENDA: Legislative Update Steps to Compliance Part I Entity Analysis Part II Due Diligence Classification & Validation Document Collection Part III Registration Part IV Withholding & Reporting Questions \ 2

3 The Science of Finance FATCA Legislative Update

4 FATCA Steps to Compliance NO EXTENSION OF FATCA EFFECTIVE DATE: Treasury adamant that July FATCA effective date would not be changed. ELUSIVE FINAL FORMS W-8: IRS has said forms will not be out until "early 2014 perhaps as late as February HARMONIZATION REGULATIONS: Unfortunately, the IRS does not expect to issue these until "early" in Further, the IRS stressed that not all "harmonizations" will be to the rules contained in the FATCA regulations given the different policy goals of the three withholding regimes. (Chapter 3, Chapter 61 and Chapter 4). NEW SET OF CHAPTER 4 REGULATIONS: Treasury/IRS announced that they will issue a new set of FATCA regulations "early" in These will be regulatory changes resulting from comments on Final Regs, but did not specify what issues will be addressed \ 4

5 FATCA Steps to Compliance DIRECT REPORTING NFFES: Notice introduced of a new type of FATCA entity, "direct reporting non-financial foreign entities" ("DRNFFEs"). These are non-professionally managed passive entities that can opt to report their account holders directly to the IRS rather than to an FFI servicing their account. IGA SNAPSHOT: Treasury reported that there are 12 IGAs currently in place and another 17 expected by July 1, VOLUNTARY DISCLOSURES AND PENALTIES: The IRS noted that there has been an increase in voluntary disclosures of chapter 3 deficiencies because they were discovered in the course of FATCA implementation efforts. The IRS encouraged such voluntary disclosures but re-emphasized that it will not automatically waive penalties unless a good case can be made for a reasonable cause exception \ 5

6 FATCA Steps to Compliance REVENUE PROCEDURE : Revenue Procedure introduced the final FFI Agreement in December Changes include updates to cross-references and other changes to confirm FFI Agreement to the regulations. The most significant change is the addition of a 2 year transition period during which a reporting Model 2 FFI may elect to apply the FFI Agreement s due diligence procedures in lieu of those in Annex I of the FFI s IGA. The FFI Agreement was also made consistent with the Model II IGA by putting the above election in the hands of the Model II FFI, rather than the Model II country. \ 6

7 FATCA Steps to Compliance Jan 1, 2017 W/h for gross proceeds and passthru payments 2017 IGAs up for renegotiations June 30, 2016 All remaining preexisting accounts due diligence completion deadline Dec 31, 2015 Sponsored Entities no longer use SE GIIN. Must register themselves June 30, 2015 High value account due diligence remediation deadline Dec 31, 2014 Due Diligence deadline for Prima Facie FFIs July 2, 2014 Second list of PFFIs published [monthly thereafter] July 1, 2014 FATCA due diligence & W/h begins for New Accounts June 2, 2014 First List of PFFIs published April 25, 2014 FFI Register to be on June 2 List \ 7

8 The Science of Finance STEPS TO COMPLIANCE PART I - ENTITY ANALYSIS

9 FATCA Steps to Compliance Step 1 to any compliance process is scoping and analysis of the entities at hand. Step 2 - Perform a structure analysis of your Fund, corporation, partnership to determine whether entities (both affiliated or otherwise) are within or outside the scope of FATCA Step 3 Once determined, scope those considered Foreign Financial Institutions (FFI) vs. Non- Financial Foreign Entities (NFFEs). Step 4 Complete analysis on each of the entities determined to be within the scope of FATCA to ascertain the FATCA sub-status of each. Step 5 Determine whether: The entities would be part of an Expanded Affiliated Group (EAG). An EAG is partnership, or entity other than a corporation, is treated as a member of an EAG if another member holds greater than 50% of the beneficial interests in it OR The entities will be part of a Sponsoring Entity ( SE ) group. A SE is an entity that is not a QI, Withholding Foreign Partnership, or Withholding Foreign Trust that has agreed to sponsor a group of entities for FATCA due diligence & registration \ 9

10 FATCA Steps to Compliance For EAGS: Complete an EAG analysis which identifies the number of EAGs and the entities included EAG must select Lead FI responsible for initiation & management of registration for all EAG members. Lead FI gets a GIIN used by all members to register and provide to counterparties. Note that: FFI members of EAG must be PFFI or RDCFFI as a condition Excludes newly created investment funds started with seed capital from a member of the group Location of entities within an EAG is not a factor can be US or foreign. Only foreign entities required to register with the IRS \ 10

11 FATCA Steps to Compliance For Sponsoring Entities: A Sponsoring Entity [ SE ] must: Be authorized to manage FFI and enter into contracts on its behalf Register with the IRS as a SE Agree to perform, on behalf of the FFI, all due diligence, withholding, reporting, and other requirements the FFI was required to perform if it were a PFFI Identify FFI in all reporting completed on the FFI s behalf as required Not have its status as SE revoked by IRS A Sponsored Entity can use the SE s GIIN for 2014 and A Sponsored Entity must register at the conclusion of the transition period [12/31/15] and can no longer use the SE s GIIN \ 11

12 FATCA Steps to Compliance Step 6 Determine the domicile and the IGA Model jurisdiction in which the entity resides. Determination of (1) presence or absence of IGA Model Jurisdiction and (2) if IGA Model Jurisdiction present, which one [Model I or II] will dictate due diligence, documentation gathering, withholding and reporting obligations. IGA Model I vs. Model II and Non-IGA Jurisdiction obligations: IGA 1 IGA 2 No IGA Registration & GIIN RO FFI Agreement Reporting Yes No No Local Registration & GIINYes RO Yes FFI AgreementYes Reporting IRS Registration & GIIN RO FFI Agreement Reporting Yes Yes Yes IRS \ 12

13 The Science of Finance STEPS TO COMPLIANCE PART II DUE DILIGENCE

14 FATCA Steps to Compliance Once all the entity analysis is complete, one can proceed to Due Diligence Document Collection: FATCA requires an immense amount of tax and KYC documentation collection effort. Collection of such documents per entity and proper organization of such documents is essential not only for the due diligence steps, but also for future audit prospects For FATCA due diligence purposes, the following types of documents are most relevant: Tax Documents: W-9, W-8(s) Client Ownership Structure: Org. chart, structure classification, organization contact list. Constitutional Documents: Article of Incorporation, Certificate of Formation, By-Laws, Certificate of LLP, Formation Document, Trust/ Deed Agreement, Corporate Resolutions, etc. Compliance Certifications: AML & Compliance Policy Certification, Foreign Bank Certificate, Anti- Money Laundering Letter, Bank License etc. \ 14

15 FATCA Steps to Compliance Classification and Validation are the next steps. Using the legal analyses and documents collected, an entity must decide on which of the entity FATCA classifications it falls under. Note that each of the classifications are specific to entity type and greater care at this juncture would minimize action on Change of Circumstance in the future. Once Classification has been determined, tax status must be validated using tax documents and constitutional documents. Entities may use services of third party vendor at this juncture to ensure that the tax documentation validation process has been vetted and signed off by the IRS. This also reduces future questions on validity of the tax validation process. The Sunset Rule: Generally, once a new tax form is released, the IRS provides for a 6 month sunset period. New form W-8BEN-E yet to be released should take advantage of that! \ 15

16 FATCA Steps to Compliance Pre-FATCA W8-BEN 1 page 1 form for entities & individuals BO identified and categorized in Part I Treaty benefit decided in Part II \ 16

17 FATCA Classifications FATCA Steps to Compliance \ 17

18 FATCA Steps to Compliance \ 18

19 The Science of Finance STEPS TO COMPLIANCE PART III REGISTRATION

20 FATCA Steps to Compliance The IRS Portal is the primary means for FFIs to interact with the IRS to complete and maintain their FATCA registrations, agreements and certifications. Portal is a paperless, secure & online. Portal has been open & accessible to FFIs from August FFIs are able to register as PFFIs, SEs, limited FFIs or registered deemed compliant FFIs (including Model I FFIs) Model I or Model II FFIs required to register so long as jurisdiction is identified on a list published by IRS of IGA countries, even if ratification of such IGA in the jurisdiction is not complete by July 1, 2014 Once FFI has registered, IRS will issue a Global Intermediary Identification Number ( GIIN ) to each Participating compliant FFI. GIIN will be assigned beginning no later than 2014 to be used as ID number for FFI s reporting obligations and identifying its status. Note: GIIN issue not immediate. IRS will electronically post first IRS list of PFFIs and registered deemed compliant FFIs on June 2, 2014, and will update the list on a monthly basis Last date by which a FFI can register to ensure inclusion on June 2014 FFI list is April 25, 2014 \ 20

21 FATCA Steps to Compliance Average Registration application input & submission time for each entity is expected to be about 1 hour. Does not include data to be collected on each entity before the registration process can begin. Some of the data required on each entity to be Registered are as follows: FI type (single, lead, member, or SE) FI s legal name, country of domicile/ country of residence for tax purposes. FI classification (i.e. participating FFI not covered by IGA, Reporting FI under Model UU, Limited FI etc.) FI s QI, Withholding Foreign Partnership, Withholding Foreign Trust status and EIN. Whether FI maintains branch in jurisdictions outside of its country of domicile, or the US in in the latter case, associated EINs. Business title for FATCA Responsible Officer, their contact information and legal name etc. Important to create a comprehensive checklist of information to be collected before registering on IRS Portal to reduce length of time it takes to register each entity. \ 21

22 FATCA Steps to Compliance \ 22

23 The Science of Finance STEPS TO COMPLIANCE PART IV WITHHOLDING & REPORTING

24 FATCA Steps to Compliance Withholding: No withholding for FFIs resident in IGA jurisdictions except in cases of unresolved significant non-compliance 30% Withholding for recalcitrant accounts including non-participating non-resident FFIs Withholding for New Accounts starts July 1, Withholding to be reported on form 1042-S beginning Reporting: IGA Model I to local jurisdiction. Formatting to be decided by local tax jurisdictions. IGA Model II and non- IGA jurisdiction Form 8966 or information following its directive Reporting will consist of information regarding: Substantial US owners of passive NFFEs and owner documented FFIs Certain information regarding US accounts PFFIs expected to report on payments to US Aggregate recalcitrant account information \ 24

25 Questions

26 Thank you.

27 Contact Information Sulolit Mukherjee Vice President, Global Tax Services Phone: Office Mobile \ 27

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