FATCA: Final Regulations Published

The Internal Revenue Service (IRS) and US Treasury (UST) have issued final regulations for the implementation of the Foreign Account Tax Compliance Act (FATCA). The final regulations build upon the proposed regulations issued in February 2012 and take account of comments received. In particular, the final regulations attempt to coordinate the obligations under FATCA with those imposed by intergovernmental agreements (IGAs) between the US and individual jurisdictions by adopting the timelines and many of the definitions of the IGAs.

Timelines

The final regulations make clear that the deadline for firms to enter into an FFI agreement with the IRS in order to avoid the risk of being withheld upon is 31 December 2013. FFIs registered by 31 December 2014 will need to report on US accounts held at 31 December 2013, with the first reports due by 31 March 2015.

Definitions

Of significance to the investment community, the definition of “investment entity” contained in the IGAs is adopted and thus includes investment managers, while entities holding themselves out as hedge funds and mutual funds are expressly noted as being in scope. “Deemed compliance” remains largely as anticipated in the proposed regulations and IGAs, although the creation of additional categories of deemed compliance may help some firms.

Recognizing the validity of some comments received regarding the unintended consequences of FATCA, the final regulations do include some further exemptions from FATCA for entities such as certain passive investment vehicles that are not professionally managed and non-financial entities within a financial group.

The definition of “depository entity” is refined to specify that the entity must be engaged regularly in certain banking activities.

Also, FFIs in IGA jurisdictions (and their tax authorities) will be pleased to hear that the IRS and UST are considering the potential for a common reporting format with IGA countries.

Refunds

Although the process has yet to be defined, the final regulations allow for collective refund claims to be made by an FFI on behalf of its account holders.

FFI Registration

The final regulations include a commitment that the Registration Portal will be live by 15 July 2013, and will permit FFIs to register as participating FFIs, deemed complaint FFIs or Model 1 IGA FFIs, among other categories. Procedural guidance is promised ahead of that date.

Registered FFIs will receive a Global Intermediary Identification Number (GIIN). The IRS will publish a list of registered FFIs, with the first list being no later than 2 December 2013; firms must register by 25 October 2013 in order to be sure of being included on that list.

Kinetic Partners will continue to review the final regulations and will provide a more complete briefing in due course. In the meantime, please do not hesitate to contact Nick Matthews or Matt Haddow if you have any questions.

TD 9610 Final Regulations (regulations relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, can be found on their website.