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October 24, 2012: IRS Announcement 2012-42

Foreign Account Tax Compliance Act (FATCA)


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Timelines for due diligence and other requirements under FATCA

On October 24, 2012 the IRS released Announcement 2012-42 which extends the deadlines for certain FATCA requirements. The Announcement presents new timelines for due diligence, withholding and reporting requirements that are closely aligned with those in the Model IGA, and provides additional guidance on grandfathered obligations. The following are the key timeline changes announced and a graphic charting of the changes:

Effective date of FFI agreement

  • FFI agreements will become effective on January 1, 2014 (changed from July 1, 2013) if entered into by December 31, 2013 (otherwise they are effective on the date entered into).

New accounts1

  • The requirement to implement new account onboarding procedures moved to January 1, 2014 for U.S. Withholding Agents, Participating FFIs, and Registered Deemed-Compliant FFIs (changed from January 1, 2013 for USWAs and July 1, 2013 for Participating FFIs and Registered Deemed-Compliant FFIs).

Preexisting accounts

  • U.S. Withholding Agents, Participating FFIs, and Registered Deemed-Compliant FFIs must document preexisting entity accounts identified as Prima Facie FFIs by June 30, 20142 (changed from December 31, 2013 for USWAs).
  • U.S. Withholding Agents, Participating FFIs, and Registered Deemed-Compliant FFIs must document preexisting entity accounts not identified as Prima Facie FFIs by December 31, 20153 (changed from December 31, 2014 for USWAs and June 30, 2015 for Participating FFIs and Registered Deemed-Compliant FFIs).
  • Participating FFIs must document preexisting high value individual accounts by December 31, 20144 (changed from June 30, 2014).
  • Participating FFIs must document all remaining preexisting non-high value individual accounts by December 31, 20155 (changed from June 30, 2015).

Withholding

  • There is no change to withholding on income payments which begins on January 1, 2014.
  • Withholding on gross proceeds now begins on January 1, 2017 (changed from January 1, 2015).
  • There is no change to the requirement to withhold on foreign pass-thru payments which begins no earlier than January 1, 2017.

Reporting

  • Participating FFIs will be required to file the information reports with respect to the 2013 and 2014 calendar years no later than March 31, 2015 (changed from September 30, 2014).

Additionally, the Announcement states that the final regulations will broaden the scope of Grandfathered Obligations to include:

  1. Any obligation that produces or could produce a foreign pass-thru payment and that cannot produce a withholdable payment, provided that the obligation is outstanding as of the date that is six months after the date on which final regulations defining the term “foreign pass-thru payment” are filed with the Federal Register;
  2. 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 on the date that is six months after the date on which instruments of its type first become subject to such treatment; and
  3. 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.

Announcement 2012-42 and the timeline are available for download. For more information please contact FATCA Leader or click here.

1 An account includes a payee, investor, account holder, counterparty, etc.
2 If the FFI signs an agreement after January 1, 2014, the deadline is 6 months from the effective date of the FFI agreement.
3 If the FFI signs an agreement after January 1, 2014, the deadline is 2 years from the effective date of the FFI agreement.
4 If the FFI signs an agreement after January 1, 2014, the deadline is 1 year from the effective date of the FFI agreement.
5 If the FFI signs an agreement after January 1, 2014, the deadline is 2 years from the effective date of the FFI agreement.

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