United States: It’s Always A Day Away: The IRS Postpones FATCA Withholding

Keywords: IRS, FATCA, due diligence, IRS

Through an odd set of events, the oldest of the authors of this Legal Update attended opening night of the original production of Annie in 1977. Being the precocious teenager that he was, he left the theater and promptly declared that what is now one of the most beloved shows ever made would close before the end of the week. Predictions regarding the effective date of the Foreign Account Tax Compliance Act ("FATCA") now appear equally erroneous. Moreover, the Internal Revenue Service (the "IRS") must have been listening to Tomorrow, the show's theme song, when thinking about the implementation challenges presented by FATCA. Specifically, on July 12, 2013, the IRS released Notice 2013-43, and the Treasury announced that it was engaged in more than 80 intergovernmental agreement ("IGA") negotiations.1 This Notice (i) delays many timelines for the implementation of FATCA to accommodate new IGA counterparties and systems challenges and (ii) accelerates the effective date of signed, but not-yet-implemented, intergovernmental agreements with respect to FATCA.

On July 12, 2013, the US Treasury Department released new versions of both of the Model 1 and Model 2 IGAs. The IGA versions reflect the timelines provided by Notice 2013-43.

The Briefest of Backgrounds

The FATCA provisions, contained in Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended (the "Code"), provide an extraordinary set of penalty tax rules on foreign financial institutions ("FFIs") that do not (i) conduct due diligence on their account holders, equity holders and debt holders to ferret out US persons that are holding assets outside of the United States and (ii) disclose the identity of such persons to the IRS.2 Specifically, if the FFI does not comply with the FATCA rules, then "withholdable payments" to it for its own account and on behalf of its customers are subject to US federal income tax withholding.3 Withholdable payments include items of US-source income, such as interest and dividends, as well as gross proceeds "from the disposition of any property of a type which produce interest or dividends from sources within the United States."4 If the payment is made for the account of a non-participating FFI, "no credit or refund shall be allowed or paid with respect to such tax."5 In other words, if an FFI does not comply with the FATCA rules, it will be subjected to gross proceeds withholding on its US-source income and will not be able to recover the withheld amounts. Withholding rules are also imposed on United States financial institutions ("USFIs"), which include US branches of FFIs.

The FATCA withholding rules are both complemented and overridden for FFIs in jurisdictions that have entered into an IGA with the United States. FFIs in such countries generally follow the documentation and information reporting obligations specified in the IGA instead of the FATCA statutes and regulations.

Final regulations issued in January 2013 required FATCA withholding as early as January 2014 for accounts opened after such date.6 While withholding on preexisting accounts was scheduled to be effective in 2016, withholding on payments to prima facie FFIs that were not FATCA-compliant was scheduled to commence for payments made after June 30, 2014.7 As described below, certain of these effective dates have been postponed by at least six (6) months by virtue of the guidance delivered in Notice 2013-43. In addition, the IRS has provided flexible rules for FFIs that are resident in non- US jurisdictions that have signed, but not implemented, an IGA.

The Revised Withholding and Grandfathering Effective Dates

New Accounts

An account opened by a non-US person will be subject to the full array of FATCA due diligence and withholding if it opened on or after July 1, 2014. In the case of FFIs located in an IGA jurisdiction, a new account is one opened by the later of July 1, 2014 and the effective date of its FFI Agreement. Under the final regulations, due diligence and withholding would have been required for accounts opened on or after January 1, 2014. For FFIs, a midyear effective date is likely to prove to be extremely challenging because system changes generally are made for calendar years. Notice 2013-43 does not otherwise affect the dates by which withholding must commence if a payee is determined not to be FATCA-compliant. Specifically, the Notice does not affect the timing provided in the final FATCA regulations for withholding on gross proceeds (January 1, 2017),8 foreign passthru payments (no earlier than January 1, 2017),9 and payments of US source FDAP income with respect to offshore obligations by persons not acting in an intermediary capacity (January 1, 2017).10

Grandfathered Obligations

Payments on certain obligations, generally, instruments that are treated as other than equity for US tax purposes,11 that are "grandfathered," are not subject to withholding under FATCA.12 Previously, obligations and associated collateral outstanding on January 1, 2014 (and possibly later, in the case of obligations that produce "dividend equivalent payments" or "foreign passthru payments") were considered grandfathered obligations.13 The Notice provides that the definition of grandfathered obligation will be revised to include obligations that are outstanding on July 1, 2014.

Preexisting Accounts

Preexisting accounts are subject to special rules. For USFIs, the definition of a preexisting account will be modified to include any account outstanding on July 1, 2014, instead of January 1, 2014. For participating FFIs ("PFFIs"), that is, a FATCA-compliant FFI, an account is treated as a preexisting account if it was open on the effective date of its PFFI Agreement. The Notice is unclear regarding whether a PFFI will be able to register as a PFFI prior to July 1, 2014, but contains language suggesting that it may be possible for such an FFI to register as a PFFI as early as January 1, 2014. Accordingly, PFFIs should carefully consider whether to register as of January 1, 2014 or July 1, 2014 (if this is in fact a choice) as this choice may affect whether an account is a preexisting account.

FFIs located in IGA jurisdictions, however, may treat accounts outstanding as of the later of July 1, 2014 and the effective date of their registration as grandfathered accounts as preexisting accounts, even if the IGA provides for a January 1, 2014 cutoff date. In Notice 2013- 43, the IRS noted that the "most-favored nation" provisions in the signed IGAs allow it to make this change.

It does not appear that the dates by which withholding must be commenced on preexisting accounts is deferred by Notice 2013-43. Under the final regulations, provided the payer does not have information that the payee is a (i) nonparticipating FFI or (ii) prima facie FFI, withholding is not required on payments made before January 1, 2016.14 Under the rule for payments to non-financial foreign entities ("NFFEs"), withholding is not required on payments made prior to January 1, 2015 unless the payer has information that the payee is a prima facie FFI.

Prima Facie FFI Due Diligence And Withholding

Payers of withholdable payments will not be required to identify and potentially withhold on payments made to prima facie FFIs prior to January 1, 2015. The Notice does not change the general effective date for withholding on payments to non-US persons

Six-Month Delay for FFI Registration

The FATCA registration website for FFIs that desire to register to be treated as PFFIs is projected to be accessible on August 19, 2013 (not July 15, 2013, as previously expected), but FFIs will be able to amend their registration at any time until January 1, 2014. Consistent with this six-month extension, the IRS will not issue any Global Intermediary Identification Numbers until 2014. FFIs need to finalize their registration by April 25, 2014 to ensure inclusion in the first published FFI list. The delay should enable FFIs to gather the information needed to register more members of their expanded affiliated group in an initial filing.

PFFIs No Longer Need to Report on 2013

Though the due date of the first report required from a PFFI has not changed (March 31, 2015), PFFIs will only be required to report on its US accounts with respect to the 2014 calendar year in this first report. This change is intended to apply in the context of Model 1 IGAs as well.

Jurisdictions with Signed IGAs

The IRS is now allowing FFIs located in countries that have signed but not implemented IGAs with the US to be treated as though the IGA was implemented. Specifically, a jurisdiction will be treated as having in effect an implemented IGA if the jurisdiction is listed as such on a list to be released by the Treasury Department. This rule alleviates the issue with the fact that the US Senate has not yet approved any of the signed IGAs, and delays in foreign jurisdictions in developing local implementation rules. (We note that there is not a consensus on whether Senate approval is required for IGAs.) FFIs in listed jurisdictions can register with the IRS as registered deemed-compliant FFIs and obtain GIINs prior to the actual signing of the IGA.

Extensions on Chapter 3 Documentation

Withholding documentation, including Forms W-8, for regular income tax withholding purposes is valid only until the expiration of the third calendar year after the year in which it is signed (or until there is a change in withholding status).15 For both regular income tax purposes and for FATCA purposes, Notice 2013-43 extends the validity period for Forms W-8 that would have expired on December 31, 2013 until July 1, 2014. The Notice does not change the obligation to obtain new documentation if there is a change in circumstances. Similarly, all qualified intermediary (QI), withholding partnership (WP), or withholding trust (WT) agreements that would otherwise expire on December 31, 2013, will be automatically extended until June 30, 2014.

FTRO Extension

The foreign-targeted registered obligation (FTRO) rules, which had been reinstated by IRS Notice 2012-20 but were scheduled to sunset at the end of 2013, have been extended to registered obligations that otherwise comply with the FTRO rules and that are issued before July 1, 2014.

Originally published July 15, 2013


1 US Treasury, Treasury Engaging with More than 80 Countries to Combat Offshore Tax Evasion and Improve Global Compliance (July 12, 2013).

2 See Code § 1471(d)(2) (financial accounts include depository accounts, custodial accounts and debt and equity investments in the FFI).

3 Code § 1471(a); Prop. Treas. Reg. § 1.1471-2(a)(1).

4 Code § 1473(1)(A).

5 Code § 1474(b)(2)(a)(ii).

6 Treas. Reg. § 1.1471-2(a).

7 See generally, Leeds, Sambur, Goldberger & Morris, 'Tis a Gift to Be Simple: IRS Issues Final FATCA Regulations, Daily Tax Report (January 23, 2013).

8 Treas. Reg. § 1.1473-1(a)(1)(ii).

9 Treas. Reg. § 1.1471-4(b)(4).

10 Treas. Reg. § 1.1473-1(a)(4)(vi).

11 Treas. Reg. § 1.1471-2(b)(2)(ii).

12 Treas. Reg. § 1.1471-2(b)(1).

13 Treas. Reg. § 1.1471-2(b)(2)(i).

14 Treas. Reg. § 1.1471-2(a)(4)(ii)(A).

15 Treas. Reg. § 1.1441-1(e)(4)(ii).

Learn more about our Tax Transactions & Consulting practice.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.