FOREIGN ACCOUNT TAX COMPLIANCE ACT: FINAL REGULATIONS AND CURRENT DEVELOPMENTS

Transcription

1 FOREIGN ACCOUNT TAX COMPLIANCE ACT: FINAL REGULATIONS AND CURRENT DEVELOPMENTS J.P. Morgan Corporate & Investment Bank Presented by Client Tax Services April 2013 S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L

2 Agenda Page 24 Overview of FATCA and the Final Regulations 2 Timeline 4 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 1

3 FATCA Overview and Final Regulations Purpose and Scope The Foreign Account Tax Compliance Act (FATCA), introduced as part of the HIRE Act in 2010, is designed to compel foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) to provide information to the U.S. Internal Revenue Service (IRS) about U.S. persons who hold accounts with or interests in FFIs or NFFEs. FATCA introduces new requirements on both U.S. withholding agents and certain foreign financial institutions entering into FATCA agreements with the IRS relating to: Account documentation and due diligence; focus on identifying U.S. owned accounts and U.S. payees 30% FATCA withholding tax on FATCA withholdable payments (noncumulative) New and expanded tax reporting, on Forms 1042, 1042-S and 8966 Final FATCA Regulations Released January 17, 2013: New Key Effective Dates July 15, 2013 Registration Portal will be available online October 25, 2013 Last day to register on portal to be on first IRS list of FFIs December 2, 2013 IRS will post the first list of FFIs and intends to update the list monthly January 1, 2014 Extended date of grandfathered obligations July 1, 2014 Due diligence for Prima Facie FFIs (pre-existing accounts) January 1, 2015 Due diligence for high value accounts March 31, 2015 PFFIs to report on tax years 2013 and 2014 January 1, 2016 Due diligence for all other accounts (pre-existing accounts). * See detailed timeline 2

4 Agenda Page Overview of FATCA Overview and the Final Regulations 2 Timeline 4 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 3

5 Timeline: Key Effective Dates for USWAs and PFFIs FATCA Timeline FATCA Compliance Action Items General Compliance Grandfathered obligations Effective date of FFI Agreement for FFIs receiving a GIIN prior to December 31, 2013 Transition period for affiliated group rule Dec 31 Jan 1 Jan 1 New / Preexisting Accounts Withholding USWA: Begin new account onboarding USWA: Complete preexisting accounts PFFI: Begin new account onboarding PFFI: Complete preexisting accounts Begin income withholding (excluding offshore accounts generally effective to January 1, 2017, except intermediaries/flow-thru entities) Begin gross proceeds withholding Begin foreign-passthru payments withholding PFFI: Begin U.S account information and balance reporting * Jan 1 Jan 1 Dec 31 - All other entity accounts Jun 30 Prima Facie FFIs Dec 31 - High Value Individiuals Jan 1 Dec 31 -All other accounts Jun 30 Prima Facie FFIs Mar 31 Jan 1 (offshore) Jan 1 Jan 1 Reporting PFFI: Begin U.S. account income reporting * PFFI: Begin U.S. account gross proceeds reporting * PFFI: Begin reporting on recalcitrant accounts (for 2014) # and account balances* PFFI: Begin aggregate reporting on NPFFI payments, including 871(m) (only for 2015 & 2016)**. See UK IGA USWA: Begin U.S. owner reporting for passive NFFEs/ODFFIs* (except on US PFFI pools). Direct SUSP on Form 1099*** USWA: Begin reporting on "reportable amounts" i.e., US FDAP, but excludes to 1/1/2017 Bank Deposits "BDI" (except payments if USWA is intermediary/pass-thru)** See UK IGA USWA: Begin reporting on gross proceeds Final FATCA Regulations * Form 8966 ** Form 1042-S *** Form 1099 Caveat: Time line (above) does not reflect distinct withholding transitional rules for NFFEs (Reg. Sec (b)(2), which would defer withholding only until 1/1/2015 except for prima facie FFIs and passive NFFEs with substantial US owners; Offshore BDI exceptions do not apply to payment payor is acting as intermediaries flow-thru entities. 4 Mar 31 Mar 31 Mar 31 Mar 15 Mar 15 Mar 31 Mar 15 Offshore BDI if withholding Mar 15 if BDI, only if withholding Mar 15

6 Agenda Page Overview of FATCA Overview and the Final Regulations 2 Timeline 3 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 5

7 New Accounts Documentation Requirements Documentation Withholding certificates (Forms W-9 and W-8), GIINs (and verification of ) for foreign financial institutions; 12 major FATCA documentation categories Focus is on identifying US persons, recalcitrant or non-participating/compliant clients, and substantial US owners of non-financial foreign entities Variances in rules for onshore, offshore, and pre-existing (vs new) accounts Documentary evidence; provides flexibility regarding documents collected and retained FATCA classification of new account holders will be established, documented and incorporated into current client onboarding process. Changes in circumstances (FATCA status) need to be monitored. FATCA will require identification of underlying client s payees, including various instances where client is acting as an intermediary or flow-thru entity Modifying current client on-boarding process to collect documentation, such as U.S. tax withholding certificates, selfcertifications, etc is underway Validation of information against other documentation collected during client on-boarding (e.g., AML); to vet any indicia of US status is required 6

8 New and Preexisting Accounts (cont.) Requirements for both U.S. Withholding Agents and PFFIs (see Timeline): Presumption rules will be applied for undocumented accounts, generally individuals will be presumed US, and entities will be presumed undocumented foreign entities New accounts of a customer that has a preexisting obligation may in JPMorgan s discretion be treated as a preexisting account so long as they are treated as one obligation for purposes of: AML due diligence, aggregating balances and applying the standards of knowledge for purposes of FATCA Cures for U.S. indicia have been modified by the Final Regulations FATCA classification of existing account holders must be established and documented Review existing documentation, such as U.S. tax withholding certificates, self-certifications, etc., and collect additional information from client as needed, and Validate information against other documentation collected during client on-boarding (e.g., AML) Identify population of prima facie, high value accounts (PFFIs), individual and entity accounts required for review 7

9 Agenda Page Overview of FATCA Overview and the Final Regulations 2 Timeline 4 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 8

10 Withholding Requirements - Grandfathered Obligations Regulatory Requirements for both Withholding Agents and PFFIs (see Timeline): Cutoff date extended to January 1, 2014, by the Final Regulations (debt securities, contracts, obligations issued prior to that date are eligible for grandfather relief) Payments otherwise withholdable under FATCA are exempt from withholding if paid pursuant to a grandfathered obligation Any reporting requirements are unchanged Withholding agents can rely on written statements by the issuer of the grandfathered obligation for grandfathered status and determination of whether a material modification has taken place The Final Regulations provide an exemption from withholding for a payment with respect to collateral posted to secure a grandfathered obligation Payments with respect to pooled collateral must be allocated between grandfathered and non-grandfathered obligations Obligations giving rise to withholdable payments under IRC Section 871(m) or foreign passthru payments will be grandfathered if outstanding on or before the date that is 6 months after a specified date to be determined by future Treasury Regulations Standby letters of credit and revolving credit facilities may be considered grandfathered obligations (if terms are adequately fixed) even if the drawdown occurs after January 1,

11 Withholding Requirements (Cont.), Withholding Agents and PFFIs (see Timeline) Regulatory Requirements for both Withholding Agents and PFFIs (Cont.): General Rule of Withholding: Withholdable payments made to nonparticipating FFIs or recalcitrant accounts will be subject to 30% FATCA withholding tax Rules are provided regarding refunds of tax Effective Dates (see Timeline) Withholding on new accounts commences January 1, 2014, subject to exceptions Multiple effective dates depending on specific facts and transition rules Exception for payor FFIs outside U.S.: Withholding is deferred until January 1, 2017 where the payor FFI is: Not acting as an intermediary with respect to the payment, and Not acting as a flow-through entity with withholding responsibilities FATCA withholdable payments must be identified U.S. source payments only Generally limited to FDAP (fixed and determinable annual & periodic income), the types of payments customarily subject to U.S. withholding and/or reporting currently, such as dividends, interest, certain rents or royalties, and other payments Under FATCA, U.S. source payments expanded from current rules (e.g., bank deposit interest paid by non- U.S. branches) Regular current U.S. tax withholding plus FATCA withholding can t exceed 30% A PFFI can elect to have a USWA withhold FATCA withholding tax at a rate identified by the PFFI;( e.g., where the PFFI is an intermediary (e.g., a partnership for U.S. tax purposes) or is acting in a capacity as an intermediary or agent FATCA withholding over-rides U.S. income tax treaty withholding reductions 10

12 Agenda Page Overview of FATCA Overview and the Final Regulations 2 Timeline 4 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 11

13 Reporting Requirements, Withholding Agents and PFFIs (see Timeline) Reporting Requirements for Withholding Agents and PFFIs: The Final Regulations modified the due date for the first information report for U.S. accounts with respect to the 2013 and 2014 calendar years to March 31, 2015; this date can be automatically extended by up to 6 months New FATCA annual reporting to the IRS includes select information for U.S. accounts, non-participating FFIs and other recalcitrant accounts Limited reporting in earlier years, expanded in later years (see Timeline) For IGA Model 1 countries, annual reporting is made to the local government (not IRS), with subsequent intergovernmental exchange of data to IRS Form 8966 (new): PFFIs and USWAs will report the following on Form 8966: PFFIs Only: Annual reporting of U.S. account holders PFFIs Only: Reporting of payments to payees who are recalcitrant (tax year 2014 forward). PFFIs and USWAs: Reporting of specified substantial U.S. owners of passive Non-Financial Foreign Entities (NFFEs) PFFIs and USWAs: Reporting of specified U.S. owners of Owner-Documented FFIs Form 1042 / 1042-S: USWAs and to a limited extent PFFIs will report the following on Form 1042 / 1042-S: USWAs: Current reporting expands to including all FATCA withholdable payments PFFIs Only: Foreign reportable amounts paid to an NPFFI in 2015 and

14 Agenda Page Overview of FATCA Overview and the Final Regulations 2 Timeline 4 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 13

15 FATCA Intergovernmental Agreements (IGAs) Intergovernmental Agreements (IGAs) are bilateral agreements concluded between the U.S. and countries considered partner jurisdictions with the aim of improving international tax compliance and implementing FATCA. To date, five countries have concluded IGAs. A number of countries have also announced their intention to enter into such agreements, by means of a Joint Statement with the U.S. or a similar public announcement. Please refer to the table on the following page for details of these countries. FATCA will then be enforced though local legislation. Note the IGA simply provides the formal framework for the implementation of the rules. The final regulations confirm that IGA definitions apply instead of the FATCA definitions as set out in the final regulations. Model 1 IGA Released July 26, 2012 The Financial Institution (FI) registers with the IRS and commits to report information on reportable accounts annually to their local tax authority in line with the legislation set out by the partner jurisdiction. The partner jurisdiction will automatically exchange this information with the IRS. The FI should also provide its U.S. withholding agents with the amount of the FATCA withholdable income it receives that is allocable to its investors who are not FATCA compliant. Reciprocal version: Non-reciprocal version: Model 2 IGA Released November 15, 2012 FIs are required to register with the IRS and report information on reportable accounts annually, directly to the IRS. The partner jurisdiction may then share information on recalcitrant accounts with the IRS pdf 14

16 FATCA Intergovernmental Agreements Country Date of Announcement Status of IGA Proposed IGA Model United Kingdom September 14, 2012 Signed Bilateral Agreement Model 1 (local tax authority reporting) France February 8, 2012 Joint Statement Model 1 (TBC) Germany February Initialled Bilateral Agreement Model 1 Italy February 14, 2013 Initialled Bilateral Agreement Model 1 Spain November 20, 2012 Initialled Bilateral Agreement Model 1 Japan June 21, 2012 Joint Statement Model 2 (IRS reporting) Switzerland February 14, 2013 Signed Bilateral Agreement Model 2 Guernsey October 8, 2012 Joint Statement (equivalent) Model 1 (TBC) Isle of Man October 8, 2012 Joint Statement (equivalent) Model 1 (TBC) Jersey October 8, 2012 Joint Statement (equivalent) Model 1 (TBC) Netherlands October 12, 2012 Joint Statement (equivalent) (TBC) New Zealand October 25, 2012 Joint Statement (TBC) Denmark November 14, 2012 Signed Bilateral Agreement Model 1 Mexico November 19, 2012 Signed Bilateral Agreement Model 1 Ireland December 21, 2012 Signed Bilateral Agreement Model 1 An announcement on November 8, 2012, confirmed the following additional jurisdictions with which Treasury is in the process of finalizing an intergovernmental agreement hopes to conclude negotiations in the near future : Canada, Finland, Norway, and South Africa. The announcement also listed the following jurisdictions with which Treasury is also working to explore options for intergovernmental engagement: Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Romania, Russia, Seychelles, Saint Maarten, and Slovenia. The announcement also identifies 16 additional countries with which Treasury had discussions regarding FATCA. 15

17 Agenda Page Overview of FATCA Overview and the Final Regulations 2 Timeline 4 Account Due Diligence Requirements 6 Withholding Requirements 9 Reporting Requirements 12 Intergovernmental Agreements 14 Appendix 17 16

18 Tax Forms- New Draft U.S. Tax Certification, Reporting and Registration Forms Form Intended Usage Notes Form W-8BEN (Current) Certificate of foreign status of beneficial owner for U.S. tax withholding To be replaced with new forms (Form W-8BEN/Form W-8BEN-E) Form W-8BEN Certificate of foreign status of beneficial owner for U.S. tax withholding (Individuals) Draft version (1 page) released Form W-8BEN-E Certificate of foreign status of beneficial owner for U.S. tax withholding (Entities) Draft version (6 pages) released (Current: 1 page) Form W-8ECI Certificate of foreign person s claim that income is effectively connected with the conduct of a trade or business in the U.S. Draft version(one page) released Form W-8EXP Certificate of foreign government or other foreign organization for U.S. tax withholding Draft version (2 pages) released Form W-8IMY Form 8966 Form 8957 Form 1042 Form 1042-S Certificate of foreign intermediary, foreign flow-through entity, or certain U.S. branches for U.S. tax withholding FATCA report FATCA registration (in lieu of electronic registration via FATCA Portal ) Annual Withholding Tax Return for U.S. Source Income of Foreign Persons Foreign Person s U.S. Source Income Subject to Withholding. 17 Draft version (7 pages) released (Current: 2 pages) To be used by FFIs and withholding agents To set forth all the information to be reported with respect to financial accounts Draft version released April 5, 2013 Draft versions released April 2, 2013 for Form 1042 (2013) and 1042-S (2014) To include all the information to be reported by withholding agents under both (c) and(d) (chapter 4) and (chapter 3)

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