Addressing the challenges of workflow protocols for onboarding new account data and managing existing account data is receiving a new focus by financial institutions sparked by the IRS recently granting a six-month extension for key FATCA compliance deadlines.

Determining FATCA ClassificationOn July 12, 2013, the IRS released Notice 2013-43 to provide guidance regarding FATCA implementation and to postpone by six months many of the deadlines set forth in the FATCA final regulations. A driving force behind the extension was the“overwhelming interest from countries around the world” and continuing efforts by the U.S. Department of Treasury to reach Intergovernmental Agreements (IGAs) with over 80 foreign jurisdictions as part of its fight against offshore tax evasion, according to a July 12, 2013 press release issued by Treasury.

A need to grant Foreign Financial Institutions (FFIs) additional time to comply with FATCA for efficient implementation was also cited by Treasury as a reason for the extension. A primary purpose of FATCA is to require FFIs to identify and report on accounts receiving U.S. source income. Generally, a FFI is a non-U.S. entity that accepts deposits, holds financial assets for others, or is engaged primarily in the business of investing, reinvesting or trading securities. FATCA provisions cast a wide net and FFIs not only include traditional banks but could include insurance companies, investment trusts, mutual funds, hedge funds and pension plans.

The FATCA registration website, commonly referred to as the “Portal,” opened on August 19, 2013, as projected by Notice 2013-43, to allow institutions to begin creating accounts. The Portal allows an institution to customize an account homepage within a secure environment to oversee its member and branch information.An institution will be able to modify its registration data through December 31, 2013. Then, each participating financial institution will be expected to actively make a final submission of its registration by April 25, 2014.

The IRS intends to begin issuing Global Intermediary Identification Numbers (GIINs) as registrations are finalized with the first list of FFIs expected to be posted by June 2, 2014. Subsequently, the IRS will electronically update the FFI list on a monthly basis.

New Accounts and Withholding

Notice 2013-43 recognized that comments submitted in response to the FATCA regulations indicated that the implementation timeline (1) presented “practical problems” for both U.S. withholding agents and FFIs and (2) created short-term uncertainty regarding effective dates for certain IGAs. As a result, the notice offers a six-month extension for the implementation of new account opening procedures to July 1, 2014. Similarly, FATCA withholding that was scheduled to begin on January 1, 2014 has generally been postponed to July 1, 2014.

The timing for some FATCA withholding categories under the final regulations remains unchanged. Specifically, Notice 2013-43 has no effect on withholding based on gross proceeds, pass-through payments and payments of U.S. source Fixed, Determinable, Annual or Periodical (FDAP) income with respect to certain offshore obligations.

New Deadlines for Key FATCA Due Diligence Dates

 Action   Prior Deadline  New Deadline

FATCA Registration Portal launch

July 15, 2013 Aug. 19, 2013

*Final registration for GIINs by FFIs

Oct. 25, 2013 April 25, 2014

New account opening procedures

Jan. 1, 2014 July 1, 2014

Begin FATCA withholding

Jan. 1, 2014 July 1, 2014

Due diligence on pre-existing accounts held by prima facie FFIs

June 30, 2014 Dec. 31, 2014

*First Report on U.S. accounts by PFFIs

March 31, 2015 (for calendar years 2013 and 2014) March 31, 2015 (for calendar year 2014 only)

*A Global Intermediary Identification Number (GIIN) is issued by the IRS to each Foreign Financial Institution (FFI) which becomes a Participating Foreign Financial Institution (PFFI) by entering into an information reporting agreement with the IRS. For a description of FATCA-related acronyms, please see the Periodic Table of FATCA Acronyms.

Pre-Existing Accounts

The definition of “pre-existing accounts” has been modified by Notice 2013-43 to generally constitute a financial account maintained as of June 30, 2014. This definition will be changed in both model IGAs and it correlates with the new July 1, 2014 date established for having new account opening procedures in place.

By operation of other extensions, deadlines for completing due diligence on pre-existing accounts have generally been postponed by six months. Due diligence deadlines for pre-existing accounts set forth in the final regulations vary depending on factors such as PFFI status, whether the account is held by a prima facie FFI, and whether the account belongs to a high-value individual.

2013 Data No Longer Part of First Report

In one of the most significant changes with respect to data management, a Participating Foreign Financial Institution (PFFI) will no longer have to maintain certain data for the 2013 calendar year. Under Notice 2013-43, the March 31, 2015 deadline for a PFFI to file its First Report with respect to U.S. accounts has not changed, but a PFFI is now required to report such data for the calendar year of 2014 only, rather than for both 2013 and 2014. As a result, partner jurisdictions subject to an IGA will not have to exchange 2013 data.

From hosting informal peer-to-peer FATCA events, the Alacra Compliance Team has learned that wide discrepancies exist with respect to how firms are implementing FATCA workflow systems. As institutions focus on how to improve workflow efficiencies to meet the numerous FATCA requirements, it is worth noting that a firm which is noncompliant related to any one process may be deemed by the IRS to be entirely FATCA noncompliant. Demonstrating a good faith effort in terms of overall time and expense devoted to compliance efforts by the firm may be irrelevant if any single process is not in full compliance. Ultimately, FFIs failing to comply with FATCA face a 30% withholding tax on certain account payments.

Is your firm registered and ready to go with FATCA? Is there more to be done? Let us know in the comments below.

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