foreign account tax compliance act (fatca) executive...

Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement Model 1 Latest Updates and Requirements - Regulatory Timeline - Overview of Requirements - Registration Process

Naidira Alemova-Goeres

Partner, Deloitte Financial Advisory GmbH

Bucharest, October 3, 2013

Copyright © 2013 Deloitte Development LLC. All rights reserved. 1

FATCA aims to identify from US persons trying to avoid US tax

obligations by holding assets in non-US structures and products

What does FATCA involve?

Foreign Financial Institutions (FFIs) are required to enter

agreements with U.S. Treasury to identify and report U.S.

accounts annually

Non-Financial Foreign Entities (NFFEs) are required to

report substantial U.S. owners or certify no U.S. ownership

U.S. withholding agents and participating FFIs are required

to withhold 30% of withholdable payments made to

recalcitrant account holders or non-participating FFIs.

Participating FFIs are required to select FFI Officers who

certify that the FFI is in compliance with the obligations set

forth under the agreement.

Who must meet the FATCA requirements?

Foreign Financial Institutions

Non-Foreign Financial Entities and affiliates

U.S. Withholding Agents

Who are the targets?

U.S. Individuals

U.S. Entities ( including corporations, partnerships and

trusts )

Non-U.S. Financial Entities with substantial U.S. ownership

US Assets

Fund Insurance

product

$

IFA / wealth

manager

Custodian

Broker

US Person

Bank

account Trust

U.S. Withholding

Agents, FFIs and

NFFEs

Income, sales proceeds

and passthru payments

FATCA

$


On January 17, 2013, the U.S. Treasury Department (“Treasury”) and the Internal Revenue Service

(“IRS”) issue final FATCA regulations (“Final Regulations”)

Originally codified as part of the Hiring Incentives to Restore Employment Act of 2010, the Final

Regulations complete a series of interim guidance issued by the Treasury and the IRS, including a

series of IRS notices, the proposed regulations released on February 8, 2012, and Notice 2012-42

issued on October 24, 2012.

Notice 2013-43, issued by the IRS on July 12, 2013, provided new timelines for the implementation of

the requirements: in accordance with the revised timelines, foreign financial institutions (“FFIs”) shall

prepare for the first wave of compliance milestones starting July 1, 2014.

The Final Regulations introduce the Global Intermediary Identification Number (GIIN) and place great

emphasis on the relationship of the regulations with the two forms of intergovernmental agreements

(“IGAs”): Model 1 and Model 2. In particular, the Final Regulations make clear that FFIs in Model 1 IGA

jurisdictions will be governed by the laws enacted in their own countries while those in Model 2 IGA

jurisdictions will follow the final regulations.

The Final Regulations do leave open the opportunity for foreign governments to negotiate for the

inclusion of terms that would allow entities within their jurisdiction to follow more beneficial

requirements in the Final Regulations. The emphasis on IGAs may signify Treasury’s realization that

IGAs — and not the Final Regulations — may be the path forward to achieve FATCA’s goal and

establish a global information reporting framework.

Chronological Development


FATCA Compliance Action Items Old Date New Date

General Compliance

Registration Portal Opening Date July 15, 2013 August 19, 2013

GIIN Registration Deadline for first 2014 list October 25, 2013 April 25, 2014

First 2014 GIIN list December 2, 2013 June 2, 2014

Last date to register for GIIN before withholding begins1 December 31,

2013 June 30, 2014

Effective date of FFI Agreement for registrations before

withholding begins2

December 31,

2013 June 30, 2014

Transition Period for affiliated group rule January 1, 2016 No Change

New / Preexisting

Accounts

FFI begin new client account onboarding January 1, 2014 July 1, 2014

Cutoff date to determine preexisting account population December 31,

2013 June 30, 2014

Initial account balance determination date for de-

minimis rules and high value account3 rule

December 31,

2013 June 30, 2014

FFI complete preexisting Prima Facie FFI accounts2 June 30, 2014 December 31,

2014

FFI complete preexisting high value individual accounts December 31,

2014 June 30, 2015

FFI complete all other preexisting entity accounts December 31,

2015 June 30, 2016

FFI complete all other preexisting individual accounts December 31,

2015 June 30, 2016

Updated Timeline Summary: Final Regulations vs. Notice 2013-43


Updated Timeline Summary: Final Regulations vs. Notice 2013-43 (continued)

FATCA Compliance Action Items Old Date New Date

Reporting

Calendar year(s) to report for U.S. Account reporting 2013 & 2014

2014 (for U.S.

account identified

by December 31,

2014)

Withholding

Begin income withholding on U.S. source FDAP4

income for Nonparticipating FFIs5 January 1, 2014 July 1, 2014

Begin offshore U.S. source income payment

withholding2 January 1, 2017 No Change

Begin gross proceeds withholding2 January 1, 2017 No Change

Begin foreign -passthru payments withholding2 January 1, 2017 No Change

1 Verification of a GIIN is not required for a Model 1 FFI prior to January 1, 2015. Model 1 FFIs will be able to register

and obtain a GIIN beginning on January 1, 2014 but will have additional time beyond July 1, 2014 to register and obtain

a GIIN to be included in the FFI list before January 1, 2015. 2 Not applicable to Model 1 FFIs. 3 Preexisting individual accounts with a balance or value that exceeds $1,000,000 as of December 31, 2013. 4 Payments of U.S. source dividends, interest and other fixed or determinable annual or periodic income. 5 Applies to U.S. source income paid to Nonparticipating FFIs by reporting FATCA Partner Financial Institutions acting

as a withholding Qualified Intermediary (“QI”), withholding foreign partnership or withholding foreign trust. Other

reporting FATCA Financial Institutions must provide information necessary to allow an immediate payor to withhold.


Model 1 IGA Final Regulations

Request self-certification from each

Individual and Entity account holder to

establish the account holder U.S. status

Rely on documentation collected for KYC/AML purposes

Confirm the reasonableness of the self certification based on the information collected for AML/KYC

Apply standards of knowledge and reason to know principles based on U.S. indicia

IGA Model 1Customer Due Diligence:

New Individual & Entity accounts

For identified U.S. persons, obtain a self-

certification that includes the account

holder’s U.S. TIN (which may be an IRS Form

W-9 or other similar agreed form)

For identified U.S. persons, obtain a valid

waiver and account holder’s U.S. TIN (which

may be an IRS Form W-9 or other similar

agreed form)


Requirements consistent with the ones in Final Regulations

Aggregate the value of accounts for individuals maintained by FFI or its affiliates if on shared recordkeeping system

Determine FATCA taxonomy for non- U.S. entity accounts as FFIs or NFFEs

Identify each account for individuals with indications of U.S. citizenship or residency

Identify the recalcitrant accounts

Establish a process for tracking and retaining correspondence with the account holder

Maintain scanned documents associated with each account to support the decisions and information with each

account

Identify High Value

Accts over $1mln

Identify accts with

U.S. indicia

Analyze for

Exceptions

Identify known U.S. Persons and accts

with balances under $50,000

Identify entity accts under $250,000

Determine Status of

entity

Analyze for

Exceptions

Understand the type of entity

Requirements for Entity Accounts Requirements for Individual Accounts Search for accounts that have been

documented as U.S. for other tax purposes.

Can elect to eliminate depository accounts

with a balance or value of less than $50,000

($250,000 for a cash value insurance or

annuity contract).

Determine if account balance is above $1mln

and perform required due diligence for U.S.

indicia and solicit necessary documentation

Determine status of account and obtain

necessary documentation

Review data collected to identify any

exceptions

Determine if entities are FFIs or NFFEs

Identify the place the account holders were

formed or incorporated

Determine if FFI is participating or deemed

compliant. Determine if NFFEs are exempt

or otherwise if they have any specified U.S.

owners

Determine if an entity account holder was

identified as an exception to FATCA

reporting

IGA Model 1 Customer Due Diligence:

Preexisting Individual & Entity accounts

Preexisting entity accounts with account

balances of $250,000 or less are exempt from

review until the account balance exceeds

$1,000,000


U.S. Indicia Documentation Required

U.S. citizenship or lawful permanent resident 1. Obtain W-9 and valid and effective waiver for non-IGA countries;

2. Self-certification that includes U.S. TIN for IGA Model 1 countries

U.S. birth place 1. Obtain W-9 and vailid and effective waiver or W-8BEN for non-IGA countries;

2. Self-certification for IGA Model 1; and

3. Non-U.S. passport or similar documentation establishing foreign citizenship;

and

4. Written explanation regarding U.S. citizenship or a copy of the individual’s

Certificate of Loss of Nationality of the United States or Form I-407

U.S. address (residence, correspondence, or P.O. Box)

1. Obtain W-9 and vailid and effective waiver or W-8BEN for non-IGA countries;


3. Non-U.S. passport or similar documentation establishing foreign citizenship

U.S. Telephone Number 1. Obtain W-9 and vailid and effective waiver or W-8BEN for non-IGA countries;


3. Non-U.S. passport or similar documentation establishing foreign citizenship

Instructions to transfer funds to U.S. accounts or

directions regularly received from a U.S. address

1. Request W-9 and vailid and effective waiver or W-8BEN for non-IGA countries;


3. Documentary evidence establishing non-U.S. status

Only address on file is “in care of” or “hold mail” or U.S.

P.O. Box (excludes foreign PO Box as U.S. indicia)

1. Request W-9 and vailid and effective waiver or W-8BEN for non-IGA countries;



Power of Attorney or signatory authority granted to person

with U.S. address

1. Request W-9 and vailid and effective waiver or W-8BENfor non-IGA countries ;

Self-certification for IGA Model 1; and


U.S. Indicia and Required Documentation


Comparison of IGA model agreements to final regulations

Issue Model 1 Model 2 Final regulations

FFI agreement Not required for resident FFIs. Resident FFIs must agree to

comply with the requirements of

an FFI Agreement. Article 2(a).

Subject to specified exceptions,

all FFIs must enter into an FFI

Agreement to avoid withholding.

Requirement to withhold, on

payments to FFIs, see Reg.

§1.1471-2(a).

FFI Agreement described, Reg.

§1.1471-4.

Amendment of agreement Intended prior to December 31,

2016. Article 10.

Expected to be the same as

Model 1.

Unknown.

Registration with IRS Required. See, e.g., HMRC

Guidance Notes, Section 2.1.

Required. Article 2(1)(a). Required. Reg. §1.1471-4(a).

Enforcement of compliance Local/IRS. Article 5. Local/IRS. Article 4. Internal compliance program;

certifications; IRS. Reg. §1.1471-

4(f).

Significant non-compliance Must be resolved within 18

months. Article 5(2)(b).

Must be resolved within 12

months. Article 4(2).

Rules provided to cure event of

default. Reg. §1.1471-4(g).

Deemed-compliant/exempt

entities

Annex I(VI)(B)(4), and Annex II

(by mutual Agreement).

Annex I(VI)(B)(4), and Annex II

(by mutual Agreement).

Reg. §§1.1471-5(e)(5), -5(f), -6;

Reg. §1.1472-1(c).

Can resident FFIs be non-

participating FFIs?

Limited to cases of unresolved

significant non-compliance. Article

5(2)(b).

Limited to cases of unresolved

significant non-compliance. Article

4(2).

Yes




Due diligence

requirements

Annex I Annex I Reg. §1.1471-4(c).

Election to follow due diligence

provisions of the regulations

rather than Annex I

Yes. Annex I(I)(C). Yes. Binding subject to material

modification rule. Annex I(I)(C).

N/A

Permitted to open undocumented

individual accounts

No, except for de minimis

accounts. Annex I(III)(B).

No, except for de minimis

accounts. Annex I(III)(B).

Yes, but subject to a limited cure

period. Reg. §1.1471-5(g)(ii).

Permitted to open undocumented

entity accounts

No; however, self-certification

may not be required. Annex

I(V)(B), (C).

No; however, self-certification

may not be required. Annex

I(V)(B), (C).

Yes, but subject to a limited cure

period. Reg. §1.1471-4(c)(3)(ii).

Required closing of recalcitrant

account holders

No. Article 4(2). No. Article 4(2)(a). Yes, as specified. Reg. §1.1471-

4(i). Required reduction. Reg.

§1.1471-4(g)(1)(ii).

Required to provide financial

services to specified U.S.

persons

Limited to small financial

institutions with a local client

base. Annex II.

Limited to small financial

institutions with a local client

base. Annex II.

Limited to certain deemed-

compliant FFIs.

Reg. §1.1471-5(f)(1)(i)(A).




Resolution of conflicts of law to

permit reporting

Yes Yes No

Reporting of information to local

authority or IRS

Local Authority, Article 2. IRS, Article 2. IRS, Form 8966: U.S. accounts,

Reg. §1.1471-4(d)(3)(vii);

recalcitrant, Reg. §1.1471-

4(d)(6)(v).

Information reporting

requirements

Specified in agreement. Article 2. Based upon regulations. Article

2.

Provided in Reg. §1.1471-4(d).

Reporting of U.S. accounts Automatic for reportable U.S.

accounts. Article 2(1).

Consent to report required from

each US Account. Article 2(1).

Waiver required from each U.S.

account, if reporting is prevented

under foreign law. Reg. §1.1471-

4(i)(2).

Reporting of recalcitrant

accountholders

Automatic for reportable U.S.

accounts. Article 2(1).

Treated as U.S. accountholders,

total number and value to be

reported, and subject to group

request by U.S. Article 2(2).

Reg. §1.1471-4(d)(6).

U.S. reciprocity Yes* Optional No

* Reciprocal agreement only.


According to Final Regulations, a “limited” status for an FFI and branch will cease

after December 31, 2015.

It is important to note that Final Regulations make an exception to FFIs located in

jurisdictions subject to Model 1 or 2 Intergovernmental Agreements (“IGA”).

According to both Model 1 and 2 IGA, starting January 1, 2016, FFIs in IGA

jurisdictions will remain in compliance with FATCA despite being affiliated with

certain nonparticipating FFIs while, in non-IGA jurisdictions, a participating FFI

may be deemed to be out of compliance with its FFI Agreement if it is affiliated

with an FFI whose “limited” FFI status has just expired.

Both Model 1 and 2 IGAs have a clause “Special Rules Regarding Related

Entities and Branches” that permits FATCA Partner Financial Institution to retain

their FATCA status as long as they limited FFIs and branches as separate

nonparticipating financial institution and identify them as such to withholding

agents.

Expanded Affiliated Group – IGA Application


Link: http://www.irs.gov/Businesses/Corporations/FATCA-Registration

24-hour-a-day, seven-days-a-week accessibility

Allows FFI users to establish an online account, including the ability to establish an access

code and challenge questions

Ensure security for all data provided on behalf of FFI

Provides FFIs with tools to oversee member and/or branch information

Key Features of the FATCA Registration Portal

http://www.irs.gov/Businesses/Corporations/FATCA-Registration





FATCA Registration Portal Interface


Registration Timeline

Date Action

19 August 2013 • Registration portal opening (only trial access)

1 January 2014 • Submission of registration requests possible

25 April 2014 • GIIN registration deadline for first 2014 list

2 June 2014 • First 2014 GIIN list

1 July 2014 • Begin income withholding

• FFI begin new account onboarding


FFI (or a foreign branch) not covered by an IGA:

• to enter into an FFI Agreement (on line, by checking the box) to be treated as a

participating FFI, or

• to agree to meet the requirements to be treated as a registered deemed compliant FFI, or

• to confirm that it will comply with the terms applicable to a Limited FFI or a Limited Branch

• and to obtain a Global Intermediary Identification Number (GIIN)

Reporting FFI (or a foreign branch) under Model 2 IGA:

• to confirm that it will comply with the terms of an FFI Agreement, as modified by the

applicable Model 2 IGA

• to authorize one or more PoCs

• to obtain a GIIN

Reporting FFI (or a foreign branch) under Model 1 IGA:

• to authorize one or more Points of Contact (PoC)

• to obtain a GIIN

Purpose of FATCA Registration


The GIINis proposed to be a unique alphanumeric sequence that provides the

following benefits:

• Provides a new way to identify a financial institution, with a distinct format that

was designed so as to not be confused with existing identification/reporting

numbers currently in use;

• Allows for easy identification of a financial institution’s type, and country of

residence;

• Associates each entity with other affiliates/branches in the same member group;

• Allows a residence country to use a single identification number to identify all

information associated with a financial institution.

Global Intermediary Identification Number (GIIN)


GIIN Composition

Character

Representation

Position Description

FATCA ID 1-6 Randomly generated number by the system

7 Separator

FFI type 8-12 • Single,

• Lead,

• Member, or

• Sponsoring Entity

13 Separator

Cathegory type 14-15 Two-character abbreviation identifying either the

FFI cathegory or Branch of the FFI

16 Separator

Country identifier 17-19 Standard country code of the FFI or Branch

− GIIN is issued to FIs, other than Limited FFIs or Limited Branches, after the

FATCA registration is submitted and approved.

− GIINs are alphanumeric, comprised of 19 characters, and are in the following

format: XXXXXX.XXXXX.XX.XXX:


Information requested by the FATCA Registration Portal

1. FFI type:

• Lead

• Member

• Sponsoring

• Single

2. Legal name

3. Country of tax residence

4. FATCA classification:

• Participating + Model 2

• Registered deemed compliant + Model 1

• other

5. Mailing address

6. QI, WP or WT indicator

• Including EIN

7. Foreign branches:

• U.S. branch including TIN

• Foreign branches

8. Responsible officer:

• Name

• Address

• Phone and e-mail

9. Points of contacts

• Up to 5

This document contains general information only and Deloitte is not, by means of this presentation, rendering accounting,

business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for

such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business.

Before making any decision or taking any action that may affect your business, you should consult a qualified professional

advisor.

Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this

presentation.

Certain services may not be available to attest clients under the rules and regulations of public accounting.

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