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Final FATCA regulations issued – where to from here for Australian banks?

Banking on Tax, Issue 9


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On 17 January 2013, the U.S. Treasury Department and IRS released 544 pages of supplementary information and final regulations for the Foreign Account Tax Compliance Act (FATCA). The final FATCA regulations are a culmination of the series of interim guidance issued by the U.S. Treasury Department and the IRS, including a series of IRS Notices, the proposed regulations released on 8 February 2012, and Announcement 2012-42 released in October 2012. The final regulations take into account comments and consultation with industry stakeholders in limiting the institutions, obligations and accounts subject to FATCA and setting out detailed guidance for its implementation.

The final regulations contain numerous changes from the draft regulations. Many of the changes are to provide additional detail for compliance with FATCA obligations, while other changes are more substantive. Importantly, the final regulations adopt the revised timeline included in Announcement 2012-42, which aligns the timing for phasing in FATCA obligations in the final regulations with the timing set out in the intergovernmental agreements (IGAs).

The first key dates are 25 October 2013 to register FFIs with the IRS and 1 January 2014 for several major processes to go live, including FATCA-compliant on-boarding of new customers.

Interaction of the final regulations with an Australian IGA

Australia continues to progress towards a Model 1 IGA on FATCA with the U.S., which will require all financial institutions resident in Australia (Australian FIs) to comply with a modified version of FATCA, although many aspects of the IGAs and the final regulations are now considered to be broadly consistent. Under a Model 1 IGA, Australian FIs that must report on U.S. accounts under the IGA will report to the Australian Taxation Office, which will then provide information to the IRS.

The final regulations will interact with an Australian IGA in a number of ways, including:

  • Australian FIs that are in compliance with Australian laws to be implemented to identify and report U.S. accounts will be treated as satisfying the FATCA due diligence and reporting requirements for FATCA
    • Australian FIs will generally not need to apply the final regulations for the purposes of complying with and avoiding withholding under FATCA
    • In certain cases prescribed in the IGA, Australian FIs may be able to elect to apply provisions of the regulations instead of the rules otherwise prescribed in the Australian IGA (although, this requires the election to apply for each full set of provisions - e.g. pre-existing individual accounts)
    • The IRS and U.S. Treasury Department recently indicated that any definition that is available (or preferential) in the final regulations will also be available under an IGA

  • The IRS currently contemplates that a Global Intermediary Identification Number (“GIIN”) may be used by reporting Model 1 FFIs (such as Australian FIs) to satisfy reporting requirements under local law and is discussing this possibility with Model 1 IGA partners, and as part of the OECD’s Treaty Relief and Compliance Enhancement (TRACE) program

  • The IRS is also discussing with partner jurisdictions the possibility of adopting a single format for reporting FATCA information. One of the key features of the TRACE program recently approved for implementation by the OECD is standardisation of reporting and documentation and efforts are underway to align requirements for TRACE and FATCA

  • The Australian IGA, rather than the final FATCA regulations, will determine whether a resident entity described in the Australian IGA is an FFI.

Where to from now until 1 January 2014

Some Australian financial institutions will be exempted or deemed compliant with FATCA under either an IGA or the final regulations. This status should be documented and dealt with in accordance with the FFI’s governance framework. Such FFIs will still need to register (refer below) and have a compliance program in place to ensure compliance with the exemption or deemed compliant category requirements.

Under an IGA, there will no longer be the ability for an Australian FI to choose not to comply with FATCA. The IGA will require all FFIs resident in Australia to comply (or be deemed to comply) with FATCA.

Australian FIs that are not exempted or deemed compliant will need to progress, or continue to progress, their FATCA projects during 2013 to meet the 1 January 2014 ‘go-live’ date under either an Australian IGA or the final regulations. Even if an Australian IGA is signed shortly, it may be some time before detailed guidance for Australian FIs is provided via Australian legislation, regulation or ATO rulings. In the meantime, the final regulations, along with guidance from other Model 1 IGA jurisdictions (e.g. the UK) provide direction and assistance for FATCA implementation by Australian banks.

Where Australian FIs may be able to elect to apply the final regulations rather than the rules prescribed in an Australian IGA, Australian FIs will need to be sufficiently familiar with those aspects of the final regulations to enable an informed decision as to whether such an election should be made or not.

With around nine months to go, Australian financial institutions should focus their FATCA projects on the following ‘must-haves’ that are required by 1 January 2014:

  • Classify all entities for FATCA purposes, including deemed-compliant entities

  • Undertake financial counterparty due diligence and agree scope of responsibility with counterparties

  • Put in place new account opening processes, which should be cross-referenced to anti-money laundering and other account opening documentation requirements and will require consideration of approach (e.g. self-certification vs., search for U.S. indicia) and may require IT system changes

  • Initiate a FATCA compliance program to comply with the IGA (or an FFI Agreement for entities in a group that are resident in jurisdictions outside Australia)

  • Register with the IRS by 25 October 2013 to ensure a GIIN is issued by 31 December 2013. Provided an Australian IGA is signed and on the IRS list of IGAs, Australian FIs will need to register, even if the IGA is not ratified by the registration deadline.

Please click here to access our global FATCA resource library, where you will find a copy of the final FATCA regulations.

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