IRS Announcement 2012 - 42 Timelines for due diligence and other requirements under FATCA
The IRS released Announcement 2012 - 42 on 24 October presenting new timelines for due diligence, withholding and documentation requirements, as well as guidance on gross proceeds and grandfathered obligations.
Impact for Australian FFIs
The announcement is welcome for Australian FFIs as it will align the timelines under the FATCA draft regulations with the timelines under the Model Intergovernmental Agreement (IGA). This will ease the administrative burden for Australian FFIs that operate in both jurisdictions requiring an IGA for FATCA, and jurisdictions that will need to comply with the final regulations. The announcement gives Australian FFIs more time to work towards compliance with the draft regulations, while the Australian government continues to consider the feasibility of an IGA for FATCA.
Meanwhile on 25 October, the New Zealand government announced that it will pursue an IGA for FATCA
Summary of key changes
The following are the key timeline changes announced and a graphic charting of the changes:
- FFI Application
- The deadline for entering into the FFI agreement has moved to 31 December 2013 (back from 30 June)
- New Accounts
- The requirement to implement new account onboarding procedures has moved to 1 January 2014 for U.S. Withholding Agents, Participating FFIs, and Registered Deemed-Compliant FFIs (back from 1 January 2013 for USWAs and 1 July 2014 for Participating FFIs and Registered Deemed-Compliant FFIs)
- Pre-existing Accounts
- Pre-existing entity account documentation for clients identified as Prima Facie FFIs has moved to 30 June 2014  for U.S. Withholding Agents, Participating FFIs, and Registered Deemed-Compliant FFIs (pushed back from 31 December 2013 for USWAs)
- Pre-existing entity account documentation for clients not identified as Prima Facie FFIs has moved to 31 December 2015  for U.S. Withholding Agents, Participating FFIs, and Registered Deemed-Compliant FFIs (from 31 December 2014 for USWAs and 30 June 2015 for Participating FFIs and Registered Deemed-Compliant FFIs)
- Pre-existing individual account documentation for high value clients has been generally pushed back to 31 December 2014  for Participating FFIs (from 30 June 2014)
- Pre-existing individual account documentation for non-high value clients has been pushed back to 31 December 2015  (from June 30, 2015)
- There is no change to income withholding which begins on 1 January 2014
- Gross proceeds withholding now begins on 1 January 2017 (from 1 January 2015)
- There is no change to foreign passthru withholding which begins 1 January 2017
- Participating FFIs will be required to file the information reports with respect to the 2013 and 2014 calendar years no later than 31 March 2015 (from 30 September 2014)
Additionally, the final regulations will broaden the scope of Grandfathered Obligations to include:
- Any obligation that produces or could produce a foreign passthru payment and that cannot produce a withholdable payment, provided that the obligation is outstanding as of six months after the date on which final regulations defining the term "foreign passthru payment" are filed with the Federal Register
- Any instrument that gives rise to a withholdable payment solely because the instrument is treated as giving rise to a dividend equivalent pursuant to section 871(m) and the regulations thereunder, provided that the instrument is outstanding six months after the date on which instruments of its type first become subject to such treatment and
- Any obligation to make a payment with respect to, or to repay, collateral posted to secure obligations under a notional principal contract that is a grandfathered obligation.
Please contact a member of our FATCA team to discuss these and any aspects of FATCA.