On September 18, 2015, the Internal Revenue Service (IRS) released Notice 2015-66 announcing its intention to amend certain of the regulations under Chapter 4 of the Code (the "FATCA regulations"), to extend the period of time that certain of the Foreign Account Tax Compliance Act (FATCA) transitional rules will apply, including the deadline for a sponsoring entity to register its sponsored entities and re-document the entities with withholding agents.
Under the current provisions of the FATCA regulations, provided certain conditions are met, a sponsoring entity can agree to perform on behalf of one or more eligible sponsored entities all due diligence, withholding, reporting, and other requirements that such sponsored entities would have been required to perform as if they were Participating Foreign Financial Institutions (also known as PFFIs).
As a transitional procedural matter, sponsoring entities are required to register as such to obtain their own Global Intermediary Identification Number (GIIN) as sponsoring entities.
To date, however, the IRS is yet to finalize the development of a procedure for sponsoring entities to separately register their sponsored entities and receive the requisite GIINs. The existing FATCA regulations provide that for payments made prior to January 1, 2016, a U.S. withholding agent making a payment to a sponsored entity may rely on a withholding certificate (e.g., Form W-8BEN-E) that includes only the GIIN of the sponsoring entity. In the context of the Canada-US IGA, many Canadian financial institutions such as portfolio managers and investment fund managers, for example, are able to register as a "sponsoring entity" for one or more of their Canadian funds and obtain a GIIN that they can generally be used for said funds until December 31, 2015.
On August 20, 2015, the IRS updated its website with information about a new feature, to be finalized, that will allow a sponsoring entity to be able to register their sponsored entities by submitting a file through the FATCA Online Registration System. This file will contain a record for each sponsored entity for whom a GIIN is requested.
Considering however that the IRS is still developing this streamlined process, and to allow for a longer transitional period, Notice 2015-66 indicates that the FATCA regulations are to be amended such that:
- Sponsoring entities will be granted a one-year extension to register their sponsored entities by January 1, 2017
- For payments made prior to January 1, 2017, U.S. withholding agents making payments to a sponsored entity may continue to rely on withholding certificates (e.g. Form W-8BEN-E) containing only its sponsoring entity's GIIN; and
- For payments made on or after January 1, 2017, U.S. withholding agents will be required to obtain the payee-sponsored entity's GIIN.
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