This client alert provides an update on the development of the Foreign Account Tax Compliance Act ("FATCA") since our last FATCA publication in February 2012. Paul Hastings attorneys are available to answer your questions on these and any other FATCA developments.
IRS Releases Drafts of Beneficial Owner Forms
On June 6, 2012, the IRS released drafts of beneficial owner forms that foreign individuals and entities will use to certify to a withholding agent their status for purposes of FATCA. The draft forms W-8BEN, "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individual)," and W-8BEN-E, "Certificate of Status of Beneficial Owner for United States Tax Withholding (Entities)," will replace the current W-8BEN. Taxpayers with a W-8BEN on file with a payor may need to provide the replacement form.
Like the current W-8BEN, both the draft W-8BEN and W-8BEN-E will enable foreign persons to identify themselves as the beneficial owners of a payment, certify their status for withholding tax purposes generally, and claim an exemption from, or reduced rate of, U.S. withholding tax under a tax treaty. The draft W-8BEN is similar to the current W-8BEN form except that it will only apply to individuals. The draft W-8BEN-E substantially extends the current W-8BEN by adding new sections for foreign financial institutions ("FFIs") or non-financial foreign entities ("NFFEs") to identify their status (under one of 24 possible categories) for FATCA purposes and to certify that they have satisfied every requirement under FATCA to have such status. The IRS has not yet posted accompanying instructions for the draft forms.
We expect the IRS to make further changes to the draft W-8BEN-E and draft W-8BEN before they become final.
FFI Registration Process
On June 12, 2012, the IRS described its plans to build an online "FFI Registration Process" that will enable FFIs to register and enter into an FFI agreement to become participating FFIs or to certify to become registered deemed-compliant FFIs.
The online FFI Registration Process will allow users to set up accounts, establish passwords, and designate others to access the account on an FFI's behalf. This online process will require each FFI to designate a "FATCA responsible officer" who will typically sign the FFI agreement. The FATCA responsible officer will be able to delegate full FATCA registration duties (including signing) to another in-house individual or an authorized U.S.-licensed tax professional. Also, under this online process, up to five "points of contact" can be designated to help complete all aspects of registration except signing the FFI agreement.
U.S. Treasury Issues Joint Statements with Japan and Switzerland
On June 21, 2012, the U.S. Treasury issued two separate joint statements with Japan and Switzerland announcing a second model for implementing FATCA through an intergovernmental approach ("Model II"). Model II establishes a framework of direct reporting by FFIs to the IRS without violating any internal laws, supplemented by information exchanged between the United States and the foreign government upon request. This is in contrast to the first cooperation framework ("Model I") contemplated by the joint statement issued by the United States, France, Germany, Italy, Spain, and the United Kingdom in February 2012. Under Model I, FFIs would report information to their respective governments, followed by an automatic exchange of this information with the United States on a government-to-government basis.
We expect to see more countries entering into one of the two Models as more foreign governments actively engage in discussions with the United States to facilitate the implementation of FATCA by their financial institutions. One Treasury official has acknowledged that FFIs may prefer Model I because it imposes less of an administrative burden. Model II provides an alternative framework for cooperation in implementing FATCA for jurisdictions not interested in participating on a direct government-to-government basis which requires direct reporting by FFIs to the IRS. Countries interested in entering into such intergovernmental agreements will not necessarily need to have a tax treaty or tax information exchange agreement with the United States to participate. No further alternative frameworks are contemplated beyond the two models already announced.
Under the agreement contemplated by the joint statement with Switzerland, the Swiss government would direct Swiss FFIs to enter into FFI agreements with the IRS and grant an exception to FFIs under a provision of the Swiss Criminal Code that would have otherwise prohibited FFIs from complying with FATCA. In return, the United States would identify certain categories of Swiss FFIs that would be treated as exempt or deemed-compliant FFIs.
Under the agreement contemplated by the joint statement with Japan, the Japanese government would direct Japanese FFIs to register with the IRS and comply with guidance issued by the Japanese Financial Services Agency that is consistent with FFI obligations under FATCA. In return, the United States would not require Japanese FFIs to enter into separate, comprehensive FFI agreements and would identify certain categories of Japanese FFIs and entities that would be treated as deemedcompliant FFIs or as posing a low-risk of tax evasion.
Under both agreements, the Swiss and Japanese governments would accept a group request from the United States for additional information about recalcitrant U.S. accounts on an aggregate basis. The United States would agree to eliminate any obligations to terminate recalcitrant accounts or impose passthru payment withholding on recalcitrant account holders or on FFIs located in Switzerland, Japan and in any other jurisdictions that have entered into an intergovernmental agreement with the United States.
Final Regulations and Effective Date
The Treasury continues to plan to issue the final FATCA regulations by the end of this summer 2012 along with final beneficial owner forms and the FFI agreement. The IRS has indicated no plans to extend the FATCA effective date for withholding on U.S. source FDAP, which is currently January 1, 2014 under the proposed regulations.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
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