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Laurie Hatten-Boyd and Erin Kragh work for KPMG LLP, US and Zevy Reich works for KPMG LLP, Israel.
This article provides an overview of the IRS's new FATCA registration portal, and the registration process that financial institutions must follow to obtain a ”Global Intermediary Identification Number” (”GIIN”) It also provides the key deadlines that financial institutions must meet to avoid FATCA withholding and highlights areas of uncertainty with regard to the registration process that the IRS aims to resolve in the months ahead.
On August 19, 2013, the United States Internal Revenue Service (”IRS”) unveiled its Registration Portal, FATCA Registration Resources and Support Information, for Financial Institutions (”FIs” ) that are required to register as part of their compliance requirements with the United States' Foreign Account Tax Compliance Act (”FATCA”). The FATCA Registration Portal is a web-based system that permits these FIs to register their FATCA classification with the IRS completely online. The IRS also released a ”user guide” to assist FIs to navigate through the FATCA registration process1. Web links for these resources are provided at the end of this article.
According to the IRS, FATCA registration can be accomplished most efficiently and effectively through the online registration process, which eliminates the need to print, complete, and mail paper forms. It will also facilitate a more timely completion of this process. Generally speaking, the electronic registration website presents a short set of questions about the registering FI, its branches and, where applicable, its Expanded Affiliated Group ( ”EAG”) members. Foreign Financial Institutions ( ”FFIs”) that are required to enter into FFI Agreements with the IRS, or need to renew qualified intermediary ( ”QI”), withholding foreign partnership ( ”WP”), or withholding foreign trust (”WT”) agreements may also complete this as part of their registration process.
FATCA is US legislation enacted to prevent offshore tax abuses by US persons. Specifically, this is achieved through the implementation of a globally reaching information reporting regime aimed at requiring non-US financial institutions (i.e., FFIs) to register with the IRS and enter into a legally binding agreement that commits the FFIs to identify information relating to US persons with whom they maintain accounts and to report information relating to those accounts to the IRS on an annual basis. FATCA builds off the current US information reporting regime (i.e., chapter 3 or the 1441 regulations), while expanding its scope and reach and adding to the due diligence, withholding, reporting, and governance requirements of payors and recipients of US source payments.
Since the IRS has no jurisdiction over foreign entities that operate outside the United States, the ”stick” used to coerce compliance is the imposition, under FATCA, of a 30 percent penal withholding tax on certain US source payments made to non-compliant foreign entities and individuals. The effective date for FATCA withholding to begin is July 1, 2014.
Fundamental to this new regime, at least as contemplated in the statute and Treasury regulations (the ”regulations”), is the concept of the EAG. An FFI's EAG includes all foreign entities that are connected by more than 50 percent vote and value to a common parent. As an additional means to coerce FATCA compliance, the statute and regulations provide that all members of an EAG must be FATCA compliant, by a stated time, or the status of the non-compliant EAG members will taint those in good standing. This means that, although an entity registers on the IRS portal and completes an FFI registration, the fact that an affiliate in its EAG is not compliant will result in all entities in the EAG being treated as non-compliant. The severity and scope of this “all or nothing” rule is evidenced by the language in the regulations preamble. The preamble, which summarises the notes and decisions made by the US Department of Treasury (”Treasury”) and the IRS, states that the final regulations “do not adopt suggestions to relax the requirement that all members of an expanded affiliated group be participating FFIs, deemed-compliant FFIs, or limited FFIs.
Not surprisingly, there are many jurisdictions with local laws that impede or prevent FIs that operate in that jurisdiction from achieving FATCA compliance under the regulations (the requirements of which will be incorporated in the FFI Agreement). To address this fundamental obstacle to implementing FATCA as a global information reporting regime, Treasury is pursuing an alternative regime through the execution of Intergovernmental Agreements (”IGAs”) with the governments of these jurisdictions.
IGAs are an alternative compliance route whereby the FIs covered by an IGA will be bound to identify US accounts and report information about them under local laws relating to FATCA account identification and reporting, rather than under the FATCA regulations2. Interestingly, the United Kingdom, which was the first jurisdiction to sign an IGA with Treasury, has adopted legislation providing that an FI operating in its jurisdiction is covered by the IGA to the extent it is tax resident in the UK. Because in many cases this definition requires the entity to be managed and controlled in the UK, not all FIs operating in the country will be covered by its IGA. The adoption of this rule is a bit baffling because, as indicated above, FATCA is an information reporting regime. If an FI is operating in the UK and is bound by its laws, it would make sense that it is bound by its IGA. It also creates a problem for the FI if the country from which it is managed and controlled enters into an IGA and that country adopts local law that does not follow the same residency model as the UK (or where the definition of tax residency varies). In that situation, the FI might find itself in a position where it would need to enter into the FFI Agreement or, worse, find itself legally prohibited from complying with the terms of that Agreement (which was the primary purpose of the IGA).
There are two IGA models, Model 1 and Model 2. While there are many similarities between the two, one key distinction is that FIs operating in Model 1 jurisdictions will report directly to their local regulators, who will then exchange this information with the IRS. Conversely, FIs operating in Model 2 jurisdictions will be instructed, under local law, to report (in most cases) directly to the IRS. While the FIs in Model 1 and Model 2 jurisdictions are not bound by ”classic FATCA” (i.e., those requirements set forth under the regulations), most will, nevertheless be required to register on the IRS FATCA Portal and obtain a Global Intermediary Identification Number (”GIIN”). This GIIN will be used by all Participating FFIs (including FIs in Model 2 jurisdictions) and Registered-Deemed Compliant FFIs (including FIs in Model 1 jurisdictions) when dealing with other withholding agents to identify themselves as FATCA compliant. GIINs will also be used for reporting purposes.
This article will address highlights of the FATCA registration requirements to FIs operating within and without an IGA country, the registration portal, keys dates relating to the registration process, specific details of the registration process (including how the current process may have eroded the fundamental objective of the EAG), expectations for FIs registering on the IRS Portal and, finally, what FIs should be expecting in the months to come.
As indicated above, certain FIs must register with the IRS to be considered FATCA compliant. An FI that must enter into an FFI Agreement with the IRS is termed a Participating FFI (”PFFI”). The execution of the FFI Agreement will occur as part of the PFFI's registration process. Interestingly, the registration process does not mention the FFI Agreement prior to submission. There is no warning to alert the FI that completion of FATCA registration as a PFFI, is tantamount to entering into an FFI Agreement. However, upon submitting the registration, the FATCA portal allows the FI to view and print the FFI Agreement that it has apparently executed with the IRS (see the registration process, below, for additional detail). Subsequent to submitting the registration, the IRS will issue GIINs to the PFFIs
Similarly, as the name indicates, a Registered Deemed Compliant FFI (”RDCFFI”) is also required to register on the IRS Portal and obtain a GIIN in order to be treated as FATCA compliant. A RDCFFI will not, however, be required to enter into an FFI Agreement. Instead, it must continue to meet the requirements of its particular deemed compliant category to retain such status.
Under the IGAs, FIs in Model 2 jurisdictions are directed to register as PFFIs, in the same manner as any other PFFI; however, the due diligence and reporting requirement imposed on FIs subject to the Model 2 IGA will differ from those imposed on PFFIs under the regulations and the IGA agreement. In contrast, FIs in Model 1 jurisdictions, which are covered by the IGA but do not satisfy the requirements of a deemed compliant category in Annex II of that IGA, are Reporting Model 1 FIs. Reporting Model 1 FIs are a type of RDCFFI and, accordingly, must follow the corresponding FATCA registration steps. Similar to FIs in Model 2 jurisdictions, the Reporting Model 1 FIs will have different due diligence and reporting requirements from other RDCFFIs but, for registration purposes, this distinction is not significant.
The other types of FIs required, under the regulations, to register with the IRS are Limited FFIs, Limited Branches, and Sponsoring Entities.
As discussed, supra, the presence of a non-compliant FFI will taint an EAG of compliant FFIs (i.e., PFFIs, RDCFFIs, etc.). Nevertheless, recognizing that the laws of local jurisdictions may legally prohibit certain FFIs from fulfilling the requirements of FATCA, Treasury and the IRS created transition rules permitting compliant FFIs to remain in good standing until December 31, 2015, regardless of whether affiliate FFIs or branches of the compliant FFIs are unable to obtain compliant status, due to local law impediments. The FFIs that fall into these transitional categories are termed Limited FFIs and Limited Branches. A requirement of obtaining one of these special statuses is registration with the IRS via the FATCA portal.
Sponsoring Entities, which are FIs agreeing to undertake the FATCA requirements of Sponsored FFIs, must also register with the IRS.
The FATCA Registration Portal is an online application that enables FIs to register their FATCA status (e.g., PFFI (including a Reporting Model 2 FI,) RDCFFI (including a Reporting Model 1 FI,) Limited FFI, Limited Branch, or Sponsoring Entity) with the IRS. In addition, as indicated, it will permit entities that need to enter into an FFI Agreement or renew an existing QI, WP, or WT Agreement to do so online.
As stated in IRS guidance, the FATCA Registration website is designed for secure FATCA account management that contains the following features:
• allows 24-hour-a-day, seven-days-a-week accessibility;
• allows FI users to establish an online account, including the ability to establish an access code and challenge questions;
• ensures security for all data provided on behalf of FIs;
• establishes a streamlined environment for FIs to register in one place;
• provides FIs with tools to oversee member and/or branch information; and
• displays a customised home page for FIs to manage their accounts.
The FATCA Registration Portal also contains features that provide online communications and certain delegations of authority for purposes of registration through the website. The overarching intent is to provide FIs the flexibility to manage information for members and branches, which is particularly important because the website will need to be continuously updated for new entities joining an EAG and liquidating entities that are leaving an EAG.
Specifically, the electronic registration system:
• allows the FI to appoint a Responsible Officer (“RO”) and further allows that RO to appoint Points of Contact (”POCs”) to perform registration tasks;
• generates automatic notifications when an FI status changes or additional information is required; and
• issues the FI its GIIN.
The Registration Portal requires the registering FI to appoint an RO for purposes of registration. It also permits that RO to appoint delegates, POCs, to perform certain registration tasks. It is important to note that the IRS does not require the registration RO to be the same RO that will later certify as to the FI's compliance with its FATCA requirements.
Further, as it relates to the RO designation, it is not entirely clear at this time whether an FI can appoint a third party RO for registration purposes. The definition included in the Glossary of Terms in IRS Publication 5118 (”FATCA User Guide”) provides that the RO ”means an individual who is authorised under local law to consent on behalf of the FI … to the disclosure of tax information to third parties.” The definition is expanded in that same publication under the instructions for Question 10 of the registration form. There, the RO ”must be authorised under applicable local law to establish the statuses of the FI's home office and branches as indicated on the registration form.”3
While these definitions do not appear to be overly ambiguous, the uncertainty stems from prior debates between the industry and the IRS relating to who has the capacity to sign a Form W-8BEN for a corporate entity. On the issue of capacity, the IRS took the position that the person signing the form must be an officer of the corporation and explicitly stated that the signature of a director would not be sufficient.4 That position, however, conflicted with the laws of some countries where a director is, in fact, a corporate officer. It is not clear whether this reference to local law in Publication 5118 is an attempt to circumvent this director/officer debate or, instead, whether it was meant to indicate that if an officer could delegate his/her duties under local law, the same ability to delegate would be acceptable for FATCA registration purposes. While the IRS has informally indicated that it will address this issue in future guidance (specifically, Frequently Asked Questions), the October 2013 government shutdown in the US delayed the release of this expected guidance.
The IRS anticipates all communications relating to information contained in the FATCA portal (e.g., requests for additional information, a change in status, etc.) to take place electronically. To this end, where the IRS needs to communicate with a registered FI, it will send a system generated notice via email to the named registration RO. Where the RO has assigned a POC, the notice will be sent to the designated POC. 5 Informally, the IRS announced that, due to rules relating to email communications, it is prohibited from providing identifying information, such as the name of the FI, its GIIN, etc., in the email notifications sent to the RO or POC. In practice, this will mean that an RO or POC that is designated for subgroups within the EAG or multiple FI groups will receive notifications, but will not know to which group the communication applies. As a result, the RO or POC will need to log into multiple accounts to determine which account the IRS is addressing in its electronic communication. Given that the GIINs will be publicly available information,6 it seems excessively restrictive to not permit this identifying information to be included in the electronic notice.
As indicated above, the IRS will issue GIINs, as part of the FATCA registration process, to FIs (other than a Limited FFI, or Limited Branch) and Sponsoring Entities. The GIIN is one of the key lynchpins to the FATCA regime. The GIIN will be used by an FI to identify itself as FATCA compliant to the other compliant entities with whom it conducts business as well as to tax administrators for purposes of FATCA reporting. A separate GIIN will be issued to each PFFI and RDCFFI, including separate GIINs for each offshore branch of PFFIs and RDCFFIs7.
As originally contemplated, the composite of the GIIN would link all FI members of an EAG so that the IRS could easily monitor the compliance of the entire group. However, the IRS has departed from its original requirement that all members of an EAG register together and, instead, will allow EAGs to break down into multiple subgroups with multiple Lead FIs. This may be helpful, as a pragmatic matter, for a number of reasons, as where EAGs operate in multiple tie zones, or where different chains of command, business units, or lines of business make coordination of FATCA compliance difficult. Significant to this, the IRS has stated that the separately registering subgroups within an EAG will now be issued GIINs that cannot be linked, thereby thwarting the original intent to link all FIs in an EAG through their GIINs. Consequently, it seems like the EAG exercise (i.e., identifying all members within the group) may be a futile one and the real ”teeth” in the rule now reduced to the proverbial ”paper tiger.”
The FATCA registration process consists of four steps:
• creating an account;
• completing the registration form;
• submission; and
The details of each step are outlined below.
The RO or POC (see discussion, infra) creates the online account for the FI. There are only three types of FIs that can initially create a FATCA account. These are Lead FIs, Single FIs, and Sponsoring Entities. Although Member FIs will have FATCA accounts, these must be initially set-up by a Lead FI.
A Lead FI is an FI that is authorised by its Member FIs and is responsible for the creation of FATCA accounts for its EAG or for a subgroup within the EAG. Publication 5118 clarifies that a United States FI can serve as a Lead FI for its EAG. A Lead FI will have Member FIs, within the EAG or EAG subgroup, for which it is acting. Once the Lead FI creates a FATCA account for its Member FIs, each Member FI is required to populate the account with information specific to it.
Single FIs register for themselves and their branches and do not have Member FIs. A Single FI may likewise be a United State FI that is registering a foreign QI branch or a branch in a Model 1 IGA jurisdiction. Interestingly, from the definition of Single FI in Publication 5118, it is not clear whether an FI within an EAG could simply choose to register alone, as a Single FI, or whether the FI would have to be the only FI in its EAG in order to be eligible for Single FI status. The IRS has not addressed this point and, to date, has offered only inconsistent informal advice.
Lastly, as discussed above, a Sponsoring Entity is an entity that agrees to perform the due diligence, withholding, and reporting obligations on behalf of one or more sponsored entities.
As indicated above, the Lead FI will initiate the registration process for itself and its Member FIs and obtain its Member FIs' FATCA IDs. The Member FIs will use these FATCA IDs to access the FATCA portal to complete the registration requirements. Single FIs and Sponsoring Entities will likewise initiate the registration process and obtain FATCA IDs and will create an access code for login purposes.
The registration form has four sections and each FI is only required to complete the section(s) applicable to it. Part One must be completed by all registering FIs and pertains to general identifying information for the FIs. Only Lead FIs are required to complete Part Two, which requests that the Lead FI identify its Member FIs and the FATCA status of each member (e.g., PFFI, RDCFFI, Limited FFI, etc.). Part Three applies only to registering FIs that are currently operating as QIs, WPs, or WTs. Finally, Part Four must also be completed by all registering FIs. Part Four contains certifications relating to the accuracy of the information provided as well as certifications whereby the registering FI agrees to comply with the requirements relate to its particular FATCA status (e.g., terms of the FFI Agreement, IGAs, requirements for deemed compliant status, terms of updated QI, WP, WT agreement for those FIs that are renewing that status online, etc.).
A registering FI completes the submission process by clicking the requisite ”OK” button. Although the FATCA portal opened on August 19, 2013, any information saved to the Portal from that date until January 1, 2014, is not considered final. Even if the registering FI clicks ”OK” and submits the information, the IRS will not treat it as final until it has been submitted on or after January 1, 2014.
Once a registering FI's submission is processed and finalised by the IRS, the FI will receive notification that the registration has been approved. The IRS will then issue the FI (except for Limited FFIs and Limited Branches) a GIIN. It is important to note that only the Responsible Officer or designated Point of Contact will receive information relating to the FI's account status, including its GIIN (discussed infra).
Although the new FATCA information reporting regime is not effective until July 1, 2014, affected entities should be aware of, and monitor the following key dates relating to the registration process: In particular, PFFIs should be aware of the importance of registering by April 25, 2014, to ensure they are included on the initial list of registered PFFIs exempt from withholding as of July 1, 2014.
• FIs may use the remainder of 2013 to become familiar with the FATCA registration website, to input preliminary information, and to refine that information.
• On or after January 1, 2014, each FI will be expected to finalise its registration information by logging into its online account on the FATCA registration website, making any necessary additional changes, and submitting the information as final.
• As registrations are finalised and approved in 2014, registering FIs will receive a notice of registration acceptance and will be issued a GIIN.
• The IRS will electronically post the first IRS FFI List, meaning the list of PFFIs, RDCFFIs, and Sponsoring Entities along with their GIINs, by June 2, 2014, and will update the list on a monthly basis thereafter.
• To ensure inclusion in the June 2014 IRS FFI List, an FI will need to finalise its registration by April 25, 2014. (This may be problematic for FIs that will be required to enter into the FFI Agreement. To date, the IRS has only released this agreement in draft form. Because these FIs will need to satisfy internal approval processes through their Legal and Compliance Departments before executing this legal contract, the timing of the Agreement's release is critical if the FI is going to meet this deadline).
• FIs operating in IGA jurisdictions are not required to have their GIINs until January 1, 2015.
• Sponsored Entities can use the GIIN of their Sponsoring Entity until January 1, 2016.
Since the launch of the portal on August 19, 2013, user reports relay both positive and negative feedback. From a positive aspect, initial users have described the portal as user friendly and easily navigable. Users have also reacted positively to the fact that the IRS has significantly scaled back the information necessary to complete the registration process.
Unfortunately, early reports also indicate that users have experienced serious traffic related problems. Specifically, the reports indicate that when too many users are logged in at a given time, they experience frozen screens, as well as soft and hard bounces (i.e., error messages instructing the user to come back at another time or they are exited from the system entirely).
The IRS has indicated that it is aware of, and working to remedy, these issues. It is important to note that the users reports have confirmed that, as indicated by the IRS prior to the portal opening, the data entered prior to one of the above mentioned system failures has been retained. Consequently, when the user is able to re-establish connection with the FATCA Portal, he/she is able to continue the process where they left off (even if exited from the system unexpectedly).
The FATCA regime remains a work in progress. The IRS has not yet released many of its key components, such as final forms and instructions, the FFI Agreement(s), regulations that will harmonise the regulations under the existing information reporting regimes (i.e., chapters 3 and 61 of the Internal Revenue Code) to the FATCA regulations, among others.
Additionally, jurisdictions continue to negotiate IGAs with Treasury and those that have entered into Model 1 IGAs continue to work on local implementing legislation. As a result, we are not yet in a position to understand the full implications of the new regime. That said, the opening of the FATCA Registration Portal is a significant milestone for the United States as it endeavours to obtain information relating to its taxpayers that may be paying less than their fair share.
FATCA Registration Resources and Support Information: http://www.irs.gov/Businesses/Corporations/FATCA-Registration
(This website provides useful information, including a link to the FATCA Registration Portal.)
FATCA User's Guide: http://www.irs.gov/pub/irs-pdf/p5118.pdf
FATCA Registration System FAQs: http://www.irs.gov/Businesses/Corporations/FAQsFATCARegistrationSystem
Laurie Hatten-Boyd is Principal in KPMG's Washington National Tax Practice and heads up the firm's Tax Information Reporting & Withholding group. She is based in Seattle and may be contacted by email at email@example.com or by telephone at +1 206-213 4001.
Erin Kragh is Senior Associate, Financial Services Tax at KPMG LLP. She may be contacted by email at firstname.lastname@example.org or by telephone at +1 312 665 1783.
Zevy Reich is Manager at KPMG Israel and is based in Tel Aviv. He may be contacted by email at email@example.com or by telephone at +972 3 684 8920.
This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article was not intended or written to be used, and it cannot be used, for the purpose of avoiding US federal, state or local tax penalties.
1 See generally, IRS Publication 5118.
2 It is anticipated that FIs covered by an IGA will have very few withholding requirements. This is because they generally will report non-consenting and non-responsive accounts.
3 Interestingly, it appears that there are three possible ROs for purposes of registration (see Question 10, Question 11B, and Part 4) and each has a slightly different authorization requirement. Page 39 of Publication 5118 provides that the RO for Question 11B does not have to be the same RO as the Question 10 RO. Then, on page 50, the Publication describes the RO who will submit the registration in Part 4 and provides that the RO identified in Part 4 need not be the same individual identified as the RO in Question 10 or Question 11B. In addition, the IRS has made clear that those ROs do not necessarily have to be the “compliance” RO referred to in the regulations. Consequently, it would appear that an FFI could have as many as four different people operating under the same title for purposes of FATCA.
4 This requirement was set forth in updated draft instructions to the current Form W-8BEN. These draft instructions were posted on the IRS website though removed a short time later.
5 We note that there is currently conflicting information surrounding this point. Specifically, Publication 5118 appears to state that an RO can designate POCs for purposes of receiving registration information on behalf of the FI (see page 7) yet also provides that only the RO, and not the POCs, will receive notifications regarding the FI's account status. This latter point is also stated in the current registration FAQs (Question 18). That said, the IRS has publicly confirmed that the POC can, in fact, be the one to receive registration information. Presumably this conflict will be resolved in future guidance.
6 Both the regulations and the IRS require GIIN verification (i.e., matching the GIIN provided by an FI to the IRS's database of GIINs). Consequently, the GIIN is not considered private taxpayer information.I.R.C. §1474(c)(2).
7 Interestingly, Publication 5118 (in the glossary and Appendix B) states that a US branch of an FFI will not receive a GIIN, this despite the requirement in the regulations that a US branch of an FFI will have a GIIN and will have to present it with its withholding certificate. See generally, Treas. Reg. §1.1471-3(c)(3)(iii)(A)(5).
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