United States: FATCA Certifications Delayed And Other Welcomed Guidance Issued

Keywords: FATCA Certifications, IRS, Notice 2016-08,

On January 19, 2016, the US Internal Revenue Service ("IRS") issued Notice 2016-08 (the "Notice"), which announced the intention to amend the Treasury regulations promulgated under chapter 4 of the Internal Revenue Code ("FATCA").

Most notably, the Notice delays the provision of the FATCA preexisting account certification relating to participating foreign financial institutions ("participating FFIs") and foreign financial institutions located in Model 2 IGA jurisdictions ("Model 2 FFIs"), which would otherwise have been due August 29, 2016. It also eliminates gross proceeds reporting with respect to payments made by participating FFIs, Model 2 FFIs and registered deemed-compliant foreign financial institutions ("registered deemed-compliant FFIs") to nonparticipating foreign financial institutions ("NPFFIs") during the 2015 calendar year. Lastly, the Notice modifies certain rules to permit the reliance on electronically signed Forms W-8 and W-9 provided by an intermediary.

Harmonization of FATCA Certification Timing

Prior to issuance of the Notice, participating FFIs and Model 2 FFIs were required to certify to the IRS that they have complied with the applicable due diligence procedures for preexisting accounts, no later than 60 days following the date that is two years after the effective date of the FFI agreement. Thus, a participating FFI or Model 2 FFI that has an FFI agreement with an effective date of June 30, 2014, would have been required to submit a preexisting account certification to the IRS by August 29, 2016.

The Notice delays the date on which the preexisting account certification would be due. Consequently, the preexisting account certification will be due at the same time as when a participating FFI or Model 2 FFI is required to provide its first periodic certification to the IRS that it has complied with the terms of the FFI agreement. (The periodic certification of compliance must be submitted to the IRS no later than six months following the end of the certification period, and the first certification period begins on the effective date of the FFI agreement and ends at the close of the third full calendar year following the effective date of the FFI agreement.)1 Thus, a participating FFI or Model 2 FFI that has an FFI agreement with an effective date of June 30, 2014, will be required to submit a preexisting account certification to the IRS by July 1, 2018, instead of by August 29, 2016.

It is important to note that, while the Notice extends the preexisting account certification period, it does not affect the deadlines for a participating FFI or Model 2 FFI to complete the actual due diligence procedures for preexisting accounts. Thus, FFIs are still required to certify to having completed the due diligence procedures within the required time frame.

The Notice also corrects a technical error in the FATCA Regulations, which will be modified to conform to the FFI Agreement such that the periodic certification of compliance must be submitted on or before July 1 of the calendar year following the certification period, instead of no later than six months following the end of the certification period.

Elimination of Gross Proceeds Reporting for Payments to NPFFIs During the 2015 Calendar Year

Prior to the issuance of the Notice, a participating FFI, registered deemed-compliant FFI or Model 2 FFI would be required to report to the IRS certain foreign source payments, including gross proceeds, paid to an account held by an NPFFI for calendar years 2015 and 2016. In contrast, participating FFIs and Model 2 FFIs would not be required to report gross proceeds paid to US accounts and accounts held by owner-documented FFIs for calendar year 2015.

The Notice eliminates gross proceeds reporting with respect to amounts paid by PFFIs, Model 2 FFIs and registered deemed-compliant FFIs to an NPFFI for calendar year 2015 such that reporting with respect to NPFFIs occurs in the same manner as reporting to US accounts and accounts held by owner-documented FFIs.

Electronically Furnished Forms W-8 and W-9

Under Treasury Regulations and related IRS guidance, a withholding agent may rely on an electronically signed Form W-8 or Form W-9, provided that certain procedural requirements are satisfied. Certain withholding agents expressed concerns regarding their ability to rely on an electronically signed Form W-8 or W-9 that had been indirectly obtained through a nonqualified intermediary (NQI), nonwithholding foreign partnership (NWP) or nonwithholding foreign trust (NWT) that obtained such form via the NQI's, NWP's or NWT's own electronic system.

The Notice clarifies that a withholding agent may rely on an electronically signed Form W-8 or W-9 that has been collected from the beneficial owner or payee of the payment through an electronic system maintained by an NQI, NWP or NWT and furnished to the withholding agent by such NQI, NWP or NWT. However, the withholding agent may only due so provided that the NQI, NWP or NWT is a direct or indirect account holder of the withholding agent and the withholding agent obtains from the NQI, NWP or NWT a written statement confirming that the electronic documentation was generated from a system that meets the applicable requirements, and the withholding agent does not have actual knowledge that such statement is incorrect.

Local FFIs, Restricted Funds and Registered Deemed-Compliant FFIs

The Notice also modifies the timeline applicable to certain registered deemed-compliant FFIs to provide certifications to the IRS. In this regard, local FFIs and restricted funds will be obligated to submit their one-time preexisting account certifications at the same time that they submit the first periodic certification of registered deemed-compliant FFI status, which will typically also be due on July 1, 2018.

Additionally, a registered deemed-compliant FFI will be obligated to provide a periodic certification of its registered deemed-compliant FFI status on or before July 1 of the calendar year following the end of the certification period. The Notice clarifies that the certification period will begin on the later of the date the FFI registered as a deemed-compliant FFI or June 30, 2014, and end at the close of the third full calendar year following such date. Again, as a typical matter, these certifications will be due by July 1, 2018, with respect to a deemed compliant FFI that registered on or before June 30, 2014.

Unaddressed Items

Although the Notice addresses a number of stakeholder concerns, certain noteworthy concerns remain. For instance, while the Notice provides additional guidance regarding the date on which the preexisting account certification is due, it does not provide any additional guidance regarding the substance of this certification or the process by which a Responsible Officer undertakes the review necessary to make the certification. Additionally, the Notice only addresses the certification obligations of participating FFIs and Model 2 FFIs and is silent regarding the FATCA-related QI certifications applicable to a QI located in a Model 1 jurisdiction. Ideally, Treasury and the IRS will address these items in future guidance.

Originally published 20 January 2016


1. Each subsequent certification period is every three calendar years following the previous certification period.

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