In Spite of Delays the FATCA Train Rumbles On

On 1 July 2014 the U.S. FATCA legislation will, after much delay, take effect and the first key milestone of the regime will finally have been reached.

With the initial registration deadline of 25 April rapidly approaching, firms around the world are finally having to deal with the implications of the regulations. The two model US intergovernmental agreements (IGAs) relax some of the requirements and burdens of the full FATCA regulations, with most countries including the UK, Ireland, the Cayman Islands, the Channel Islands, Luxembourg and Canada opting for the Model 1 variety which requires reporting to domestic tax authorities rather than the US Internal Revenue Services (IRS). But while the deadlines for funds in Model 1 IGA jurisdictions have been slightly relaxed, it is now clear that all entities must ensure that they are FATCA or IGA compliant.

Although non-US firms might expect to be relatively unaffected by FATCA due to their investor base or investment strategy, there may still be a need to register with the IRS, notwithstanding that there may be nothing to report. In addition, the UK has executed its own IGAs with its Crown Dependencies and Overseas Territories (CDOTs) to identify and report on UK taxpayers, while the momentum of FATCA and tax transparency has led to the OECD to release plans for a Common Reporting Standard (CRS) for the automatic exchange of information or, in other words, an OECD FATCA.

Hong Kong is yet to agree on an IGA, meaning that investment entities resident there currently fall under the more-demanding full FATCA requirements. There is an added complexity in the byzantine requirements for groups working across jurisdictions, some of which will be IGA jurisdictions and others non-IGA countries, as the FATCA compliance of one entity may affect the compliance of the group as a whole.

A number of countries, including the UK, Ireland and the Crown Dependencies, have published guidance on the interpretation and application of the IGAs in their own marketplace. This guidance, especially when taken together as a body of work by reasonable authorities looking for a way through the confusion, is helpful. As recently as February 2014, the UK HMRC’s guidance was amended to include some welcome changes and clarifications.

Meanwhile, global intermediary identification numbers (GIINs) are being issued by the IRS to firms that have finalized their application post 1 January 2014; it is important that any entities that registered prior to 1 January 2014 resubmit their application before 25 April in order to obtain a GIIN and appear on the first list. Although it is still anticipated that the current IRS FATCA portal will be updated to enable sponsored entities to register, the timing is unclear and many firms are carrying on with registration regardless, ignoring sponsorship altogether. (Currently, although a sponsoring entity may register, the sponsored entity (generally an investment manager’s fund(s)) does not register in its own capacity.)

To avoid being disadvantaged, if firms have not already done so, they should now be determining their FATCA and IGA status, registering with the IRS if necessary and preparing to comply with due diligence, on-boarding and reporting requirements under FATCA, the IGAs or, ultimately, the CRS.

The FATCA rumbles towards its next destination, FATCA Day on 1 July 2014, pulling behind it a wagon-load of acronyms including the U.S. IGAs, CDOT IGAs and the OECD CRS, together with a body of guidance and host of confused passengers across the world, financial firms just trying to do the right thing.