On January 17, 2013, the U.S. Treasury and Internal Revenue Service published the final Foreign Account Tax Compliance Act regulations (the “Final Regulations”). The Final Regulations adopted many industry comments, apply a risk-based approach, and simplify administration by allowing many institutions to leverage off existing information reporting rules. Specifically, the Final Regulations (i) coordinate the obligations for financial institutions under the regulations and the governmental agreements, (ii) align the timelines for due diligence, reporting and withholding with the intergovernmental agreements (“IGAs”), (iii) expand and clarify the scope of payments not subject to withholding – notably regarding the grandfathered obligations, (iv) refine and clarify the treatment of investment entities, low-risk institutions or passive investments entities and, (v) clarify the compliance and verification obligations of FFIs such as group of financial institutions.
Tax Forms Issued or Modified to Implement FATCA: Form W9
In August 2013, the updated Form W-9 was released incorporating the representations required for FATCA purposes. This new W-9 will have to be populated and provided by U.S. persons to their foreign financial institutions (“FFI”) which maintain their account(s) to certify their status as a U.S. person. In the wake of this identification, the participant FFI will report to the IRS on the new Form 8966 by March 31, 2015 the U.S. accounts held with the name, address, and taxpayer identification number (TIN) of the holders as well as their account number(s), account(s) balance or value, and, as required by the IRS, gross receipts and gross withdrawals or payments from the account. In case the U.S. account holder is exempt from FATCA reporting, it will complete the field “Exemption from FATCA reporting code (if any)”. Among the exempt payees, it is worth noting the following: code D - corporation which stock is regularly traded on one or more established securities markets, code E - the corporation of an expanded affiliate group, code F - dealer, code G - real estate investment trust, code H - regulated investment company, code I - common trust fund, code J - bank and code K - broker. This Form W-9 will also be required to document an account maintained in the U.S., outside the scope of FATCA, in such a case, the field regarding the exemption from FATCA reporting will be left blank. To comply with such changes requires updates to internal processes and procedures along with technical training. Please, readh out for more details on cost-effective and tailor-made solutions.
Cayman Islands IGA
On August 19th, 2013 the signature of an IGA with the Cayman Islands was announced. This agreement symbolizes the rapid increase in tax transparency around the globe, it is also welcomed as a sign of vulnerability for the banking secrecy jurisdictions such as Switzerland. It seems that it will be followed by other Caribbean jurisdictions with significant financial industries such as Bermuda and the Bahamas. The IGA is considered by the local institutions as a protection from the impact of FATCA, however, they must comply with the due diligence and reporting obligations. The Cayman Islands chose to sign a Model 1 agreement – as opposed to a Model 2 (as Switzerland) - which entails the Cayman Islands government to take responsibility for FATCA enforcement by collecting the information and, in turn, report to the U.S. government. The institutions will have to identify and document U.S. accounts and do the reporting to their own government. They must also register on the financial institutions registration portal on the IRS website and get a GIIN in order to avoid 30% on their withholding payments.
Further FATCA Information