Last Friday, January 18, the Internal Revenue Service published
long-anticipated Final Regulations under the Foreign Account Tax
Compliance Act. The Regulations will be effective on
January 28. FATCA has a significant impact on all
foreign and domestic financial institutions. It requires a U.S.
withholding agent to withhold a 30 percent tax on certain payments
to foreign financial institutions ("FFIs") that do not
agree to report certain information to the IRS concerning their
U.S. accounts and on certain payments to non-financial foreign
entities ("NFFEs") that do not provide certain
information about their substantial U.S. owners.
Changes to 2012 Proposed Regulations
The Final Regulations make a number of changes to the
extensive proposed regulations released last February, in response
to comments received from the public. These changes are designed to
target tax compliance concerns more specifically and to address
practical considerations. To this end, the Final Regulations extend
the initial date for information reporting under FATCA to March 31,
Specifically, under the Final Regulations:
All debt obligations outstanding on January 1, 2014, are exempt
Passive entities (such as trusts) that are not professionally
managed will be treated as NFFEs, not FFIs.
The categories of "deemed compliant" FFIs and
retirement funds that are considered exempt are expanded.
All pre-existing accounts held by individuals with balances of
$50,000 or less are exempt from review. The threshold for review is
raised to $250,000 for pre-existing accounts held by entities and
for accounts that are cash value insurance or annuity contracts.
Insurance contracts with a balance or value of $50,000 or less are
not treated as "financial accounts."
A participating FFI can determine whether pre-existing accounts
with a balance of $1 million or less are U.S. accounts based solely
on a search of electronically searchable account information for
certain U.S. indicia. In cases of pre-existing accounts held by
passive NFFEs, a withholding agent may rely on its review conducted
for anti-money laundering ("AML") purposes.
The ability of FFIs to rely on self-certification by entities
holding accounts is expanded.
All accounts maintained by an FFI prior to January 1, 2014, are
treated as pre-existing accounts.
The due date for the first information reporting by
participating FFIs with respect to the 2013 and 2014 calendar years
is modified to March 31, 2015.
Foreign pass-through payments and gross proceeds from sales or
dispositions of property occurring before January 1, 2017, are
exempt from withholding.
Intergovernmental Agreements ("IGAs") Modify or Override
The Final Regulations promote the U.S. government's efforts
to improve information reporting through intergovernmental
agreements, which can override or modify the requirements of the
The United States has developed two types of IGAs. Under a Model 1
IGA, FFIs must report information directly to their own
governments. The United States has negotiated or is working on
Model 1 agreements with numerous countries, including the U.K.,
Denmark, Mexico and Ireland. Under a Model 2 IGA, FFIs must
register with the IRS and report directly to the IRS. The United
States has negotiated or is working on Model 2 agreements with
Switzerland and Japan.
FFIs covered by a Model 1 IGA will not need to apply the Final
Regulations for purposes of complying with FATCA. FFIs covered by a
Model 2 IGA will be required to apply the Final Regulations, except
to the extent modified by the Model 2 IGA.
FFIs will be able to register with the IRS on a secure online web
portal, the FATCA Registration Portal. Each FFI registering with
the IRS will be assigned a Global Intermediary Identification
Number ("GIIN"), which will be used to establish its
status under FATCA and for reporting purposes under FATCA. The IRS
will permit registration of FFIs as "Model 1 FFIs" or
"Reporting Financial Institutions" under a Model 2 IGA if
they are in jurisdictions identified on a list published by the IRS
of countries treated as having in effect an IGA, even if the
foreign jurisdiction has not completed ratification of the Model
 FATCA, enacted by Congress in 2010, is found in
Sections 1471 to 1474 of the Internal Revenue Code of 1986, as
 The text of the final regulations appears at pages 142
to 543 of notice TD 9610, which also describes the background of
the statute and the comments received on the proposed regulations
and gives an explanation of the final regulations. TD 9610 can be
found at www.irs.gov/PUP/businesses/corporations/TD9610.pdf.
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).