FATCA

FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) TIMELINE

September 30, 2015
The latest date by which reporting of U.S. account-holders begins. The date by which FFIs are required to report varies depending on which jurisdiction the FFI is located in and is either by March 31, 2015 or September 30, 2015.

FFIs located in New Zealand will be required to report by September 30, 2015, information relating to the 2014 calendar year.

U.S. Begins Reciprocal Automatic Exchange of Tax Information under Intergovernmental Agreements: Read more

September 28, 2015
U.S. signs Competent Authority Arrangement with New Zealand, which comes into force on the same day.

September 22, 2015
U.S. signs Competent Authority Arrangements with Australia and the United Kingdom in Accordance with the Intergovernmental Agreements.

September 18, 2015
IRS releases Notice 2015-66 relaxing certain transitional rules

The IRS has announced its intention to amend regulations under Sections 1471-1474 of the Internal Revenue Code, Chapter 4 Withholding Tax - the FATCA provisions, in Notice 2015-66, ('the Notice') issued 18 September 2015.

The amendments will extend:

  1. the dates for when withholding on gross proceeds and foreign passthru payments will begin 
  2. the use of limited branches and limited foreign financial institutions and 
  3. the deadline for a sponsoring entity to register its sponsored entities and redocument such entities with withholding agents.

The IRS and the Treasury also indicate intentions to reduce the compliance burdens on withholding agents that hold collateral as a secured party.

Reporting requirements for jurisdictions covered by Model 1 IGAs (including New Zealand) are also relaxed for the 2014 reporting year. The Notice states:

Many partner jurisdictions that have signed IGAs or reached an agreement in substance on the text of an IGA continue to work through their internal procedures to bring the IGA into force. Pursuant to its authority.... and consistent with Announcement 2014-38, for Model 1 IGAs that have not yet entered into force on September 30, 2015 Treasury intends to continue to treat FFIs covered by the IGA as complying with, and not subject to withholding under FATCA, so long as the partner jurisdiction continues to demonstrate firm resolve to bring the IGA into force and any information that would have been reportable under the IGA on September 30, 2015, is exchanged by September 30, 2016, together with any information that is reportable under the IGA on September 30, 2016 (source: Notice 2015-66).

January 12, 2015
The Internal Revenue Service announces the opening of the International Data Exchange Service, facilitating the exchange of information between countries under the Foreign Account Tax Compliance Act (FATCA). 


Internal Revenue Service Commissioner John Koskinen called the opening of IDES a milestone in the implementation of FATCA.

IDES will be used by financial institutions and governments to securely transfer information to the United States government relating to accounts held outside the United States.

Countries which have a Model 2 IGA in force (including New Zealand) are required to obtain a digital certificate in advance of the September 30 deadline for reporting. Under the Model 2 IGA the revenue authority of the contracted country (Inland Revenue in New Zealand's case) is required to pass information to the United States government on an annual basis, acting as a conduit between the financial institutions of New Zealand and the United States government

Countries who have signed a Model 1 IGA, and whose foreign financial institutions will report directly to the Internal Revenue Service under the agreement will be contacted by the Internal Revenue Service when it is time to obtain the digital certificate.


Where a reciprocal information exchange agreement is in force, including in the case of New Zealand, IDES will also be used by the Internal Revenue Service to transfer information to the revenue authority of another country, in New Zealand's case Inland Revenue.

July 3, 2014
New Zealand's IGA comes into force, as both New Zealand and the United States have advised the other country that all processes by Reportable Foreign Financial Institutions have been finalized to be able to comply with the requirements of the IGA.

July 1, 2014
A 30% withholding tax requirement comes into force and will be required to be deducted from payments of the following categories of U.S. source income flowing out of the United States to Foreign Financial Institutions (FFI) - unless that FFI falls into one of the following categories:

  • has registered itself as a participating FFI, including FFIs covered by a Model 2 IGA 
  • is in a jurisdiction which has entered into a Model 1 IGA with the United States 
  • is a low-risk FFI

Some FFIs may qualify for an exemption from the 30% withholding if they certify their status by way of providing documentation to the withholding agent.

Categories of U.S. source income to which the above rules apply include:

Passive income including interest, dividends, insurance premiums.

June 12, 2014
New Zealand-United States FATCA IGA

The Agreement between the Government of New Zealand and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA was signed on 12 June 2014.


February 20, 2014
The U.S. Treasury and the Internal Revenue Service today issued the last FATCA regulations required to set the 2010 enacted legislation into force.

FATCA comes into force on 1 July 2014.


January 13, 2014
The U.S. Treasury and the Internal Revenue Service release Revenue Procedure 2014-13 (Rev.Proc 2014-13) today.

Rev. Proc. 2014-13 is the Agreement for Participating FFI (Foreign Financial Institutions) and Reporting Model 2 FFI.

January 1, 2014
Filing deadline for Foreign Financial Institutions to register for FATCA on Form 8957.

December 13, 2013
Announcement 2014-1 has been issued by the U.S. Department of the Treasury and the Internal Revenue Service, requiring that the agreement for Foreign Financial Institutions be published by January 1, 2014.

October 29, 2013
A draft agreement for Foreign Financial Institutions has been issued, with revised timelines, by the U.S. Department of the Treasury and the Internal Revenue Service.

August 2013
Form 8957 Foreign Account Tax Compliance Act (FATCA) Registration has been published allowing Foreign Financial Institutions to register under one of four categories:

1a). Participating Financial Institution not covered by an IGA
1b). Reporting Financial Institution under a Model 2 IGA
2. Registered Deemed-Complaint Financial Institution (including a Reporting Financial Institution under a Model 1 IGA)
3. Limited Financial Institution
4. None of the above.

July 29, 2013
The U.S. Department of the Treasury and the Internal Revenue Service have issued Notice 2013-43 which a) revises the timelines for implementation and b) provides for the treatment of Foreign Financial Institutions in countries with which the United States has entered into an intergovernmental agreement.

April 2013
Draft Form 8957 (Foreign Account Tax Compliance) FATCA Registration has been released for public review and comment. The four page document is reasonably straightforward and requires such information as whether the FFI has a withholding agreement already in place with the IRS, whether the FFI is tax resident of the United States, and whether branches are maintained in the United States or a jurisdiction outside its country of tax residence. Form 8957 will be required to be signed by the designated Responsible Officer for the Financial Institution, and certifies that both the Financial Institution and its branches will comply with FATCA obligations.
The IRS strongly encourages Foreign Financial Institutions to register online through the upcoming Portal, rather than manually file Form 8957 when finalized. The Portal is scheduled to be live and available for registration from July 2013. Paper applications will not be processed until October 2013, and Financial Institutions using that method may experience a delay in receiving both advice of acceptance and their Global Intermediary Identification Number (GIIN).

January 2013
The Final Regulations, TD 9610 Regulations (Regulations) were issued on January 17, 2013. These replace the proposed regulations issued in February 2012, thus bringing the full force of the law into effect.

Specific, operational guidelines have now crystallised, after the Treasury Department and the Internal Revenue Service (IRS) took on board comments garnered by way of extensive consultation with stakeholders last year. Consultation resulted in hundreds of comments being received. The main themes to have emerged were the costs and burdens associated with implementing FATCA, inconsistency with local laws around reporting, and procedural/systems issues.

The Regulations:

  • summarize the economic and legislative background leading up to the Regulations,
  • contain a summary of the changes to the proposed regulations,
  • comment on procedural matters including the establishment of the FATCA Portal,
  • state that the Regulations expressly supersede previous FATCA Notices and the proposed regulations,
  • contain special analyses which identify how the Regulations affect other bodies of U.S. law,
  • contain drafting information including the names of the persons whom drafted the Regulations,
  • provide a schedule of the scope and the definitions, and,
  • finish with full publication of the Regulations.

Themes coming through the Regulations are:

  • that they are a balanced and integrated approach,
  • that they are a targeted, risk-based approach,
  • that there has been, and continues to be co-operation with foreign governments, 
  • the removal of interference with the legislation of other jurisdictions,
  • efficiency in implementation and on-going compliance requirements for FFIs, and
  • that there is on-going work to do to integrate FATCA fully within the Internal Revenue Code.

Pursuant to the comments received the Treasury Department and the IRS employed a risk-based approach by which three avenues were established. One to address burdens, one to address legal impediments and one to address technical implementation.

Consequently the scope and implementation of FATCA are refined in the Regulations. Some of the key changes and additions contained in the Regulations are as follows.

  1. The grandfather provisions for obligations outstanding has been expanded to January 1, 2014.
  2. Passive entities that are not professionally managed are now designated Non-Financial Foreign Entities instead of Foreign Financial Institutions (FFIs).
  3. The category of ‘Deemed Compliant’ entities has been expanded, referring to institutions that do not need to enter into an agreement with the IRS. This has been done to enable the application of FATCA to focus on higher-risk financial institutions within the international investment community. In a common vein the scope for exempting retirement funds from FATCA requirements has been expanded.
  4. All pre-existing accounts held by individuals with a balance of US $50,000 or US $250,000 if held by an entity/cash value insurance and annuity contracts completely exempt from review. Insurance contracts with a balance or value of US $50,000 or less are not treated as financial accounts.
  5. Electronically searchable account information is able to be relied on by a participating FFI for pre-existing individual accounts with a balance or value of US $1,000,000 or less.
  6. Reviews conducted under anti-money laundering due diligence procedures are now an acceptable method in which withholding agents can identify any substantial U.S. owners held by passive Non-Financial Foreign Institutions (NFFEs).
  7. The deadline for participating FFIs to file information reports for the 2013 and 2014 calendar years is now March 31, 2015.
  8. Foreign passthru payments and gross proceeds from sales or dispositions of property occurring before January 1, 2017 are exempt from withholding.
  9. An additional model intergovernmental agreement has been developed in response to the problem with local government laws preventing reporting by FFIs to the IRS.

    There are now two agreements: Model 1 IGA, published on July 26, 2012, in which a partner jurisdiction reports information to the IRS on FFIs covered by this model. FFIs located in a partner jurisdiction and thus covered by Model 1 will not be required to apply the Regulations. Instead they will be required to report specified information about U.S. accounts to the partner jurisdiction under the IGA.

    A partner jurisdiction covered by Model 1 IGA may however permit an FFI in that jurisdiction to elect to comply with the Regulations rather than the requirements of the IGA.

    Model 2 IGA requires partner jurisdictions to direct and enable all FFIs to register with the IRS and report directly to the IRS. Model 2 IGA was published on November 14, 2012. Under this model FFIs will be required to implement FATCA as prescribed by the Regulations, modified somewhat by the Model 2 IGA.

    FFIs registering will obtain a Global Intermediary Number (GIIN) through the Portal, a number assigned by the IRS such as a Taxpayer Identification Number to enable the agency to identify the FFI and all activity ensuing with respect to the FFI and its FATCA obligations. This approach has been well received by stakeholders with the Treasury Department and the IRS receiving positive feedback about the approach to implementation by way of the IGAs.
  10. FFIs will be able to register with the IRS from anywhere in the world through a secure online web portal which will be accessible from July 15, 2013 at the latest. Through the FATCA Registration Portal (Portal), FFIs will be required to register as either a participating FFI or a reporting Model 1 FFI. A registering FFI will be required to comply with FATCA requirements that apply to the entity’s particular situation.

    In addition to registration, FFIs will be able to certify their status as a participating FFI, manage their registration and communicate electronically with the IRS.

    Before the Treasury Department launches the Portal a Revenue Procedure will be published by the IRS prescribing the terms and conditions that apply to Chapter 4 FFIs.

    The Portal will also be used by other institutions and entities, such as Qualified Intermediaries (QIs), Withholding Foreign Partnerships (WFPs), and Withholding Foreign Trusts (WFTs). These entities already have agreements in place with the IRS granting them their status and these agreements will be renewed through the Portal.

    U.S financial institutions will also use the Portal to register foreign branch operations in some cases.
  11. The implementation of FATCA requires some modification of existing documents and the IRS is in the process of both modifying existing forms, and introducing new forms. A new addition to the Form W-8 series, which relate to foreign payees, is Form W-8BEN-E “Certificate of Status for Beneficial Owner for United States Tax Withholding (Entities). This will be used by foreign payees whom are the beneficial owners and which are entities. Existing Form W-8BEN will be revised and will be applicable only to beneficial owners whom are individuals.

    New Form 8966 “FATCA Report” will be required to be filed by FFIs including QIs, WPs and WTs and some withholding agents. Form 8966 prescribes what information must be reported on financial accounts.

    Other members of the Form W-8 family including W-8IMY, W-8ECI and W-8EXP have been revised and released. Other Chapter 3 forms which relate to reporting of payments of U.S. FDAP (Fixed Determinable Annual Periodic) income to the IRS including Forms 1042 and 1042-S are currently being revised and expanded to include Chapter 4 reporting requirements.

 

FATCA AMCHAM Presentation in Auckland
March 15, 2012

 

Article published in AMCHAM newsletter, September 2011.

Whilst the United States government ploughs on with its plans to implement FATCA, there is a growing backlash against what has been dubbed the ‘neutron bomb of the global financial system’.

The latest round of Internal Revenue Service (IRS) pronouncements on the implementation of FATCA were released on July 14, 2011. An Implementation Notice describes the timeline for the implementation of FATCA by Foreign Financial Institutions (FFIs), and United States withholding agents. The Notice was accompanied by a News Release: Treasury and IRS Guidance Outlining Phased Implementation of FATCA beginning in 2013.

To recap on what FATCA is all about, the legislation was passed in 2010 as part of the Hiring Incentives to Restore Employment Act (HIRE) in an effort to combat offshore tax evasion of citizens and residents of the United States who hold offshore accounts of US$50,000 or more in the aggregate. FATCA also affects certain foreign entities with substantial United States ownership.

FFIs currently have until June 30, 2013 to satisfy IRS requirements that will enable the FFI to be identified by the IRS as a ‘participating FFI’. The significance of which is that the FFI escapes a 30% withholding tax as explained shortly.

To satisfy IRS requirements, the FFI must enter into an agreement with the IRS to do the following:

  1. conduct certain identification and due diligence procedures with respect to the institution’s accountholders;
  2. report annually to the IRS on its accountholders who are United States persons or foreign entities with substantial United States ownership; and
  3. withhold and pay over to the IRS 30% of any payments of United States source income, as well as gross proceeds from the sale of securities that generate United States source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a United States person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial United States owners.

Failure to be recognized by the IRS as a ‘participating FFI’ will result in a 30% withholding tax being imposed on United States sourced income derived by the FFI, from January 1, 2014 on interest and dividends, followed by an across-the-board 30% withholding on all ‘withholdable payments’ from January 1, 2015.

FATCA is being phased in with work currently being done by the United States government to implement the requirements laid out in the July 2011 Implementation Notice. It is expected that by the end of 2011 the Treasury will have released Regulations pertaining to the reporting and withholding requirements pertaining to Foreign Financial Institutions (FFIs).

The worldwide backlash that started as a ripple is rapidly gaining momentum as stakeholders at all levels and in many different countries react to the legislation.

Canadian Finance Minister Flaherty has blasted FATCA, citing that United States citizens are not evading United States taxation and that Canada is not a tax haven. He also points to the existing agreement providing for both countries to share information about their taxpayers. Flaherty has called for the United States government to show some leniency against taxpayers who have innocently overlooked their United States filing obligations – including the FBAR (Report of Foreign Bank and Financial Accounts).

In another example of the backlash an organized group of American Citizens Abroad (ACA) have written to four officials including the Secretary of the Treasury and the Commissioner of the IRS, campaigning for the repeal of FATCA. The 3-page letter cites several reasons including that FATCA will drive investment out of the United States and will result in a two-tier banking system, which is akin to the Canadian Finance Minister Flaherty's description of FATCA as 'creating an extension of the IRS'.

The letter - dated August 31, 2011 - also points to the rising number of United States citizens relinquishing their citizenship and being denied access to foreign investments including pension plans, insurance contracts and mortgages. There is evidence of this already happening in New Zealand.

in addition to the organization asserting the 'highly discriminatory' nature of FATCA, there are some serious questions raised as to whether the resources will be available for the IRS to administer FATCA. Increased IRS activity in recent years including the offshore asset voluntary disclosure initiatives and the thousands of cases against the likes of UBS already has resulted, not only the IRS with its hands full, but vast negative publicity around the dangers of hiding assets offshore.

If you are a United States citizen or resident, or you are directly associated with a foreign financial institution we recommend that you ensure that you are fully aware of the potential effects of FATCA and how this legislation will apply. We will be updating this site regularly as future developments unfold.

page last updated September 25, 2015