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New FATCA notice provides transition relief, updated timeline for future guidance

FATCA Insights


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18 July 2011

Overview of important changes to the FATCA guidance and implications for foreign financial institutions

The guidance issued by the IRS at the end of last week, Notice 2011-53, provides transitional relief by delaying the implementation of certain aspects of the legislation and also provides additional clarification on certain details and indicates when draft and final regulations are expected to be released. A number of the key requirements of FATCA have been delayed, demonstrating that the IRS has been responsive to concerns raised across the industry that the timelines set out in previous guidance were extremely challenging, particularly given the complexity involved in modifying systems to be compliant with the FATCA requirements.

In brief, the phased procedures include the following:

1. 30 June 2013 deadline to enter into an FFI agreement.

  • An FFI that enters into an FFI Agreement by 30 June 2013 will be identified as a participating FFI and thus avoid FATCA withholding that will begin 1 January 2014.
  • FFIs that enter FFI Agreements after 30 June 2013 but before 1 January 2014 will be considered participating FFIs for 2014 however they may be subject to FATCA withholding due the lack of time to identify them as participating FFIs before FATCA withholding begins on 1 January 2014.
  • The effective date for FFI Agreements entered before 1 July 2013 will be 1 July 2013.
  • The effective date of any FFI Agreement entered after 30 June 2013 will be the date the FFI enters the FFI Agreement.

2. New account due diligence procedures generally must be in place from the effective date of the FFI agreement.

  • The due diligence procedure of Section 1.A.2 of Notice 2011-34 for pre-existing private banking accounts with a value of at least $500,000 will need to be performed within one year from the effective date of the FFI Agreement.
  • Due diligence procedures for pre-existing private banking accounts of a lower value need to be performed by the later of 31 December 2014 or the first year anniversary of the FFI Agreement.
  • For all other pre-existing accounts due diligence procedures must be performed within two years of the effective date of the FFI Agreement.

3. Reporting of gross receipts and gross withdrawals or payments from U.S. accounts will not be required for the first year of reporting (2013).

  • However, an FFI will be required to report as a recalcitrant account holder any U.S. Account holder identified by 30 June 2014 for which the FFI is not able to report the information required under §1471(c)(1) (for instance due to failure to obtain a waiver from the account holder).

4. FATCA withholding begins for FDAP payments made on or after 1 January 2014.

  • FATCA withholding for FDAP and gross proceeds will begin 1 January 2015.
  • Pass-thru payments will become subject to FATCA withholding no earlier than 1 January 2015.
  • The obligation to calculate any pass-thru percentage will not begin before the first calendar quarter of 2014.

5. IRS anticipates publishing proposed regulations by 31 December 2011, and final regulations in the summer of 2012.

  • IRS and Treasury anticipate issuing draft FATCA reporting forms in conjunction with the proposed guidance and final forms to be published for use in the summer of 2012.

Please find below the Notice 2011-53 for more detailed information.

Conclusion

Although Notice 2011-53 provides substantial transition relief, there remain central issues that the IRS and Treasury have yet to address, such as clarifying the definition of FFIs, expanding the level of exemptions for FATCA, and removing a requirement to withhold 30 percent from payments that might have indirectly originated in the United States.

Deloitte as a well connected global firm can offer you the relevant local and international project experience to conduct your impact assessment as well as any technical advice. We work together across disciplines with Forensics, technology, and tax specialists to advise on system and processes considerations and our strong consulting practice is here to support you with your implementation strategy.

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