More time to implement FATCA, but broader scope on the horizon
Banking on Tax, Issue 10
Status of the Australian IGA
Negotiations on an intergovernmental agreement (IGA) between Australia and the U.S. to implement the Foreign Account Tax Compliance Act (FATCA) in Australia, which is based on a Model I IGA, are well progressed. The Australian Treasury is working towards having the IGA available for signing shortly; however, with the calling of the federal election, an IGA will not be able to be signed by Australia until the next government is formed and relevant ministers appointed.
If the IGA is signed by 1 July 2014 (as it is expected to be), the U.S. Treasury and Internal Revenue Service (IRS) would then treat Australia as having an IGA in effect. As such, Australian financial institutions may then follow the IGA, even though the IGA may not have been ratified nor entered into force by enabling legislation in Australia. If it is not signed by that date, then the U.S. Treasury regulations will need to be followed.
Extension of FATCA deadlines
On Friday, 12 July 2013, the IRS released Notice 2013-43 pushing back the expected date by which the IRS FFI registration portal would be open to enable foreign financial institutions (FFIs) to register as a FATCA compliant FFI and obtain a global intermediary identification number (GIIN). The FATCA Registration System was opened and registration guidance provided by the IRS on 19 August 2013.
The IRS also extended a number of FATCA compliance deadlines by six months, including those for withholding, onboarding, and pre-existing account remediation requirements. These extensions will also be applied to current and future FATCA IGAs through the coordination provision included in IGAs. The extensions will therefore be applicable to an Australian IGA.
In light of the extensions announced in Notice 2013-43, financial institutions now have until 30 June 2014 to register with the IRS to comply with FATCA. However, the IRS has advised that registration will need to be finalised by 25 April 2014 in order for the financial institution to appear on the first IRS FFI list (the publicly available list of institutions that have registered with the IRS, which will be published monthly).
Furthermore, a reporting FFI in a country with a Model I IGA (or taken as having a model I IGA in effect) will still need to register with the IRS, but will register as a deemed compliant FFI. Model I financial institutions will have further time to register and obtain a GIIN, as they need to ensure that they are included on the IRS FFI list before 1 January 2015.
Release of UK guidance
On 31 May 2013, the UK released regulations and guidance notes for the implementation of FATCA by UK financial institutions and updated the regulations and guidance in August. The UK regulations adopt a number of provisions and definitions from the final U.S. regulations. While the UK regulations are brief (16 pages in length), the guidance notes provide 142 pages of further details for implementation.
A key area for Model I IGA FFIs is the requirement for account-holders to provide self-certification as to their U.S. status. The UK guidance in sections 4.8 to 4.13 sets out guidance on self-certification for UK financial institutions. Many aspects are not prescribed, such as the format and wording of the self-certification, provided it confirms the account-holder's country (or countries) of tax residency for all account-holders, not just U.S. persons and whether the account-holder is a U.S. citizen. However, a number of examples are provided.
Australian banks may find the UK guidance useful for FATCA implementation as detailed Australian guidance is unlikely to be issued in the short term to assist banks to determine changes required to their various onboarding processes and systems.
More FATCA-like regimes on the horizon
The OECD released a report on 18 June 2013 on the steps needed to create a fairer and more transparent global tax system (prepared at the request of the G8). The report references FATCA and IGAs in providing a framework for multilateral exchange of tax information. Upon entering into an IGA, the signing country agrees (in article 6 of the Model I IGA) to work towards the development of a common reporting and information-exchange model.
On 21 July 2013, Treasurer Chris Bowen said Australia would join a scheme modelled on FATCA, which would require Australian banks to reveal financial information about their customers to the ATO, so it can be shared with tax authorities initially in Britain, France, Germany, Italy and Spain when investigating cross-border tax evasion. Australian banks should expect a broadening scope of FATCA-like regimes in the future.
This should be taken into account when implementing FATCA to ensure that changes to systems and processes are not necessarily U.S. specific, so as to minimise the need for future changes (e.g. asking an account holder to advise regarding their tax residency, rather than simply asking if they are a U.S. tax resident or U.S. citizen).