FATCA e-alert issue 2014-25

FATCA e-alert issue 2014-25

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IRS Releases Corrections to FATCA Regulations

On 30 June 2014, the U.S. Department of Treasury and IRS released for publication in the Federal Register corrections that relate to the final and temporary regulations under FATCA (T.D. 9657). These regulations were originally released in late February 2014 and published in the Federal Register in March 2014.

Within this correction regulation package, several citations and cross references are corrected. The correcting amendments also include the addition, deletion, or modification of language with the intent to clarify the relevant provisions thereby accomplishing the intended purpose. Some of the corrections, contained in these documents, include language that was inadvertently removed in the final and temporary regulations.

 

Highlights of T.D. 9657

The final and temporary regulations that are the subject of corrections are §§1.471-1T through 1.1474-1T. These regulations affect U.S. withholding agents that make certain U.S. source payments to FFIs, other foreign entities, persons presumed to be foreign, as well as certain FFIs required under an FFI Agreement or IGA to identify and perform due diligence on its account holders. The corrections clarify ambiguities, for example, in the definitions of “U.S. branch treated as a U.S person,” in chapters 3 and 4, and also made substantive amendments to the regulations. Highlights:

  • Excepted Inter-Affiliate: The corrections amend the offshore documentation rule to state that rather than requiring documentary evidence to establish an entity’s Excepted Inter-Affiliate status, the documentary evidence should merely support the entity’s foreign status. See §1.1471-3T(d)(11)(xii)(B)
  • Limits on Reason to Know: The updated regulations make clear that the limits on reason to know standards regarding U.S. indicia apply only to withholding agents, either U.S. or foreign, that are financial institutions when a withholding certificate or documentary evidence is received. See §1.1471-3T(e)(4)(ii)(A)
  • Qualifier Removed: The corrections remove the following parenthetical regarding limits on reason to know: “applied without regard to the fact that section 1441 generally applies to reportable amounts under chapter 3 and without regard to whether the person was so documented before 1 July 2014.” See 1.1471-3T(e)(4)(vii)(B)
  • PFFI Reporting: Removal of an erroneous reference to reporting under section 3406 for a participating FFI that elect backup withholding to satisfy its chapter 4 withholding obligations. See §1.1471-4T(b)(3)(iii)
  • Exempt Beneficial Owner: The corrections expand the exception relating to activities that are not considered commercial financial activities from those engaged in by a “foreign central bank of issue” to those engaged in by an “exempt beneficial owner.” See §1.1471-6T(h)(2).
  • Foreign Central Bank of Issue: The regulations make clear that foreign central banks can maintain financial accounts for other exempt beneficial owners as well as depository accounts for current or former employees of the entity (and the spouses and children of such employees) or financial accounts for exempt beneficial owners without running afoul of the commercial activity limitations. See §1.1471-6T(h)(2)(iii) 
  • NFFE Affiliate: The corrections add a parenthetical indicating that an entity may be an NFFE Affiliate (i.e., an NFFE that is an Excepted NFFE because it is within an Expanded Affiliated Group of a publicly traded corporation) regardless of whether its publicly traded affiliate is actually an NFFE. See §1.1472-1T(c)(1)(ii)

 

For Your Reference

Corrections to T.D. 9657, released 30 June 2014 (PDF, 235 KB)

T.D. 9657, released in 6 March 2014 (PDF, 500 KB)

IRS Releases Updated FFI Agreement

In Revenue Procedure 2014-38, the IRS released updates to the FFI Agreement entered into by foreign financial institutions (FFIs) and the IRS, allowing FFIs to be treated as Participating FFIs (PFFIs).

The IRS issued an initial draft of the FFI Agreement in October 2013 (Notice 2013-69) and a final agreement in December 2013 (Rev. Proc. 2014-10). The issuance of Rev. Proc. 2014-38 further amends the FFI Agreement to provide changes consistent with the Temporary Treasury Regulations (issued Feb. 2014), Notice 2014-33, and planned changes to the pending Final Treasury Regulations. Notable changes are provided below.

  • Definitions and citations are updated for consistency with the Temporary FATCA Regulations. For example, the term chapter 4 withholding rate pool has been updated to match the amended definition in the Treasury Regulations.
  • The agreement is amended to provide for the transitional relief set forth in Notice 2014-33. The agreement now provides than an obligation held by an entity that is issued, opened, or executed on or after 1 July 2014, and before 1 January 2015, is treated as a preexisting obligation for purposes of applying the due diligence procedures under chapter 4.
  • Consistent with the Temporary Treasury Regulations, a participating FFI may now elect to backup withhold under section 3406 rather than to withhold under chapter 4 on a reportable payment made to certain U.S. non-exempt recipients if the participating FFI complies with the information reporting rules under chapter 61.
  • The agreement clarifies that the responsibilities of a lead FI are only with respect to members of the FFI group that have designated the participating FFI to act as lead FI on their behalf.
  • The agreement now provides that if a participating FFI receives a withholdable payment that is allocable to an account holder of the FFI that is a passive NFFE with one or more substantial U.S. owner(s) or controlling persons, the FFI may certify on a withholding statement provided to the withholding agent that the FFI is reporting the account holder as a U.S. account. This is intended to eliminate duplicative reporting of substantial U.S. owners.
  • The amended agreement permits a participating FFI to allocate a portion of a withholdable payment to a group of documented account holders for whom withholding and reporting is not required under chapters 3, 4, or 61.


For Your Reference

Revenue Procedure 2014-38 (PDF, 180 KB)

 

For further information, please do not hesitate to contact us.

 

 

 

 

 


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