FATCA, IGAs & CRS Regulatory Milestones and Dates

FATCA OECD AEOI
Selected Regulatory Deadlines Non IGA (FFI – Agreement) Model 1 (IGA and Statutory Instrument) Model 2 (IGA and FFI – Agreement) CRS (Early adopters) CRS (Other than Early adopters)
DUE DILIGENCE
Individuals – Pre-existing
Pre existing High Value Accounts for individuals June 30, 2015 June 30, 2015 June 30, 2015 Dec 31, 2016 Dec 31, 2017
Pre existing Accounts for individuals (Low Value: <= USD 1M) June 30, 2016 June 30, 2016 June 30, 2016 Dec 31, 2017 Dec 31, 2018
Entities – Pre-existing
Prima Facie FFIs Dec 31, 2014 N/A N/A N/A N/A
All Other Entities June 30, 2016 June 30, 2016 June 30, 2016 Dec 31, 2017 Dec 31, 2018
Format Substitute or W8/9 Substitute or W8/9 (can not use W8 for PNFFEs as Controlling Person applies, rather than Beneficial Ownership) Substitute or W8/9 Substitute as W8 does not capture residences Substitute as W8 does not capture residences
New Customers
On Boarding July 1, 2014 July 1, 2014 July 1, 2014 Jan 1, 2016 Jan 1, 2017
REPORTING COMMENCES (on previous year) Mar 31, 2015 June 30, 2015UK: May 31, 2015 Mar 31, 2015 Sep, 2017 Sep, 2018
Format & Medium XML, IDES XML, LOCAL EQUIVALENT OF IDES XML, IDES XML, IDES XML, IDES
Registration with HCTA N/A As advised by HCTA N/A TBC TBC
 
WITHHOLDING
Recalcitrant Account Holders and Non Participating FFIs (Insert note) July 1, 2014 N/A N/A N/A: Not part of the CRS N/A: Not part of the CRS
ATTESTATIONS/CERTIFICATIONS
Due date for Responsible Officer due diligence certification Aug 29, 2016 N/A: No legal instrument Aug 29, 2016 (FFI Agreement) N/A: Not part of the CRS N/A: Not part of the CRS
Personal Liability of RO Applies: FFI Agreement N/A: No legal instrument Applies: FFI Agreement N/A: No legal instrument N/A: No legal instrument
De-minimis rules $50K (Individuals), $250K (Entities), $1M (Certain Insurance/Annuity Contracts) $50K (Individuals), $250K (Entities), $1M (Certain Insurance/Annuity Contracts) $50K (Individuals), $250K (Entities), $1M (Certain Insurance/Annuity Contracts) $250K Pre-existing Entities $250K Pre-existing Entities
Excluded Accounts N/A As per Annex 2 of own IGA As per Annex 2 of own IGA As per Annex 2 of own IGA As per Annex 2 of own IGA

Screen Shot 2015-02-21 at 16.05.50

The costs of FATCA Compliance will be USD 1 to 2 trillion worldwide. The bulk of these costs will be incurred in the customer outreach required to obtain the required documentation.

There will also be considerable customer backlash to FATCA and the documentation it requires. In the age of social media this matters, if this sounds like hyperbolae please have a look at this URL:

http://isaacbrocksociety.ca/2014/08/02/philippines-metrobank-plays-fatca-hardball-with-an-ex-client/comment-page-1/

At a most basic level FATCA, the IGAs and the CRS are about making tax part of standard KYC/AML procedures and then reporting, for tax purposes, to those jurisdictions, in which the account holder has tax residence or citizenship.

FATCA diagram

  1. Governance. Attestations to the IRS and personal liability imposed on the Responsible Officer for the FATCA compliance of the Financial Institution he or she represents.
  2. Withholding on Non-Participating FFIs (NPFFIs) and Recalcitrant Account Holders (RAHs).
  3. Reporting. Reporting US Accounts individually and NPFFIs and RAHs in aggregate.
  4. Documentation. Customer Due Diligence that, as matter of practicality, essentially makes tax part of standard KYC/AML procedures.

The diagram above makes the point that Documentation (or CDD) is foundational and that Reporting can be considered the capstone.

Whilst FATCA was the catalyst for the OECD’s AEOI and whilst the AEOI was based on the Model 1 IGAs, there are important differences between them.

Documentation (or CDD) and Reporting remain, which is to say that they are consistently present throughout the US Treasury version of FATCA, the IGAs, the Statutory Instruments that write the IGAs into domestic law and also in the OECD’s Automatic Exchange of Information.

The role of the Responsible Officer and related attestations that the RO has to provide are not mentioned in the IGAs, nor in the Common Reporting Standard.

Hence, there is no legal instrument to enforce a Responsible Officer to take on personal liability in a Inter Governmental Agreement Model 1 IGA jurisdiction. However, the same can not be said of a IGA Model 2 jurisdiction because FFIs in Model 2 jurisdictions enter into a Foreign Financial Institution (FFI-A) with the IRS. FFI-As include both the personal liability of the Responsible Officer and Attestations.

Model 1 IGA FIs do not sign a FFI-A, so strictly speaking, there is no legal enabler to enforce personal liability on their Responsible Officer. Having said that, legal opinions do vary and it is appropriate to obtain legal advice on this issue. Further, many FIs span multiple jurisdictions, including Non IGA and IGA Model 2 jurisdictions. As a RO may have responsibility across each type of IGA, the possibility of personal liability not applying in IGA Model 1 jurisdictions alone, may provide very little solace. It may also be, that as part of a FIs “FATCA Policy” that the RO assumes Personal Liability, even for a Model 1 FI. It should be noted that this would be a Business Requirement, rather than a Regulatory Requirement. (Regulatory requirements should be capable of being traced to a § of a regulation and Title V of the Hire Act does not apply outside of the US unless these provisions are agreed under a contract. That contract would be the FFI-A and Model 1 FIs do not enter into a FFI-A. This is the case regardless of the fact that a RO must be identified in Q10 on Form 8957 – as part of the process of registering a Foreign Financial Institution on the IRS FATCA Portal. Registering on the IRS FATCA Portal is not the same as entering into a FFI-A.)

The IGAs also, for the most part, remove withholding intra IGA jurisdictions. Withholding can only occur on NPFFIs and RAHs. The IGAs explicitly suspend withholding on RAHs. Further, the IGAs also state that a FI in a IGA jurisdiction can only become “Non-Participating” after “significant non compliance”. “Significant non compliance” does vary by IGA, for example, Japan (IGA Model 2), has a path to resolution that lasts for a year. The UK has a path to resolution that lasts for 18 months. In any event, only when the time allowed for resolution has elapsed can a FFI in a Inter Governmental Agreement jurisdiction be “Non-Participating”. Hence, in the near future there should be no withholding intra-IGA Countries.

There are, however, exceptions: let us say that you are a FI in a Inter Governmental Agreement Jurisdiction and that you have an up stream arrangement with a US Withholding Agent (USWA). Let us also say that your FI has not yet registered on the IRS FATCA Portal and, hence, has no GIIN.

As of January 1, 2015, the USWA can no longer treat your FI as a participating FFI, not withstanding the fact that your FI is based in a Inter Governmental Agreement Jurisdiction, unless the USWA has obtained and verified your GIIN.

Under this scenario, your upstream USWA will withhold on you.

The moral of the story is that if you are an FI in a IGA Country, there are scenarios where you can be withheld upon, if you do not have a verifiable GIIN to make available.

It is fair to say that FATCA, in a IGA Jurisdiction, will be a very different experience to FATCA in a Non IGA Jurisdiction. (IGA status of all Jurisdictions.)

A New Era

Documentation (or CDD) and Reporting remain, indeed, they have been expanded to include 93 jurisdictions (and counting). FATCA tackled American Citizenship for tax purposes. The OECD’s AEOI tackles all and multiple tax residences in 93 jurisdictions (and counting).

Hence, FATCA can be seen as the AEOI in microcosm, except that the AEOI has no withholding and, as yet, makes no mention of personal liability of a RO or Attestations.

Here is a selection of deadlines for US Treasury FATCA, the IGAs and the OECD AEOI’s Common Reporting Standard (CRS).

FOR FATCA, the IGAs and the CRS what gets reported, when and how?

Hint: CRS reporting begins in 2017 (on 2016) – notice the similarities between what gets reported for FATCA in 2017 and what gets reported for the CRS.

2014:

What:

1. Account holder’s name
For passive non-financial foreign entity, the name(s) of any substantial U.S. owners
2. Account holder’s U.S. taxpayer identification number (TIN)
For passive non-financial foreign entity, only the TIN(s) of any substantial U.S. owner(s)
3. Account holder’s address
For passive non-financial foreign entity, only the address(es) of substantial U.S. owner(s)
4. Account number
5. Account balance or value
6. For accounts held by recalcitrant/non-consenting account holders: report aggregate number and balance or value.

When:

Model 2 IGA and Non IGA: March 31, 2015

Model 1 IGA:

  • Generally: June 30, 2015
  • UK: May 31, 2015
  • Host Country Tax Authority (HCTA) then forward to US IRS by September 30, 2015

How:

Model 2 IGA and Non IGA: IDES/XML

Model 1 IGA: HCTA format/XML and then HCTA transmit to IRS using IDES/AML


2015:

What: 1-6 above + plus:

7. Income paid (except certain gross proceeds from the sale or redemption of property)

When: May 31, June 30 (as above) 2016


2016:

FATCA:

What: 1-7 above + plus:

8. Gross proceeds paid to custodial accounts

When: May 31, June 30 (as above) 2017

CRS (Early adopters):

To quote directly from Section 1 of the CRS:

Section I: General Reporting Requirements

A) Subject to paragraphs C through F, each Reporting Financial Institution must report the following information with respect to each Reportable Account of such Reporting Financial Institution:

1. The name, address, jurisdiction(s) of residence, TIN(s) and date and place of birth (in the case of an individual) of each Reportable Person that is an Account Holder of the account and, in the case of any Entity that is an Account Holder and that, after application of the due diligence procedures consistent with Sections V, VI and VII, is identified as having one or more Controlling Persons that is a Reportable Person, the name, address, jurisdiction(s) of residence and TIN(s) of the Entity and the name, address, jurisdiction(s) of residence, TIN(s) and date and place of birth of each Reportable Person;

2. The account number (or functional equivalent in the absence of an account number);

3. The name and identifying number (if any) of the Reporting Financial Institution;

4. The account balance or value (including, in the case of a Cash Value Insurance Contract or Annuity Contract, the Cash Value or surrender value) as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year or period, the closure of the account

5. In the case of any Custodial Account:

a. The total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account) during the calendar year or other appropriate reporting period; and

b. The total gross proceeds from the sale or redemption of Financial Assets paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder;

6. In the case of any Depository Account, the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period; and

7. In the case of any account not described in subparagraph A(5) or (6), the total gross amount paid or credited to the Account Holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Financial Institution is the obligor or debtor, including the aggregate amount of any redemption payments made to the Account Holder during the calendar year or other appropriate reporting period.

B) The information reported must identify the currency in which each amount is denominated.

C) Notwithstanding subparagraph A(1), with respect to each Reportable Account that is a Pre-existing Account, the TIN(s) or date of birth is not required to be reported if such TIN(s) or date of birth is not in the records of the Reporting Financial Institution and is not otherwise required to be collected by such Reporting Financial Institution under domestic law. However, a Reporting Financial Institution is required to use reasonable efforts to obtain the TIN(s) and date of birth with respect to Pre-existing Accounts by the end of the second calendar year following the year in which such Accounts were identified as Reportable Accounts.

D) Notwithstanding subparagraph A(1), the TIN is not required to be reported if (i) a TIN is not issued by the relevant Reportable Jurisdiction or (ii) the domestic law of the relevant Reportable jurisdiction does not require the collection of the TIN issued by such Reportable Jurisdiction.

E) Notwithstanding subparagraph A(1), the place of birth is not required to be reported unless the Reporting Financial Institution is otherwise required to obtain and report it under domestic law and it is available in the electronically searchable data maintained by the Reporting Financial Institution.

F) Notwithstanding paragraph A, the information to be reported with respect to [xxxx] is the information described in such paragraph, except for gross proceeds described in subparagraph A(5)(b).

 How: In all likelihood – IDES and XML

When: September 2017


 Conclusion:

There are a few additional fields required for CRS compliance, over and above FATCA/IGA Compliance:

Individuals: Place of Birth,

Individuals and Entities: Tax Residences (Multiple).

Entities: Place of incorporation, Place of Organisation

With the CRS so widely adopted and with the CRS being based on the Model 1 IGA, it is likely that some Model 2 jurisdictions may migrate to a Model 1. Switzerland is an example of this migration. IGA Model 2 Jurisdictions report to the IRS. It is likely, that for CRS, each FI will report to its own HCTA. Under a Model 2 scenario a Jurisdiction would report to the IRS for FATCA and its own HCTA for CRS. This duplication may be one motivation to migrate from a Model 2 to a Model 1 IGA.

The US W8 series, in their current form, do not provide for CRS compliance:

  1. The W8 BEN does not capture the place of Birth.
  2. In most IGA Countries, determining whether a Passive NFFE is Reportable depends on identifying Controlling Persons (CP), rather than identifying US Beneficial Owners (USBO). The W8 series, for Passive NFFEs, identifies USBO, rather than CP.
  3. CRS compliance requires, for entities, their
    1. Place of Incorporation, and
    2. Place of organization
  4. The W8 series do not capture multiple tax residences

De-minimis rules differ between FATCA and the CRS (see FATCA, IGA & CRS Regulatory Milestones and Dates Table above).

Whilst there are differences between FATCA under an IGA, and the CRS, they are so similar, that to comply with the CRS, one only need go a little further than IGA compliance. Navigating these differences now might well prove the difference between a small additional expense to complying the CRS, over and above FATCA, or having huge additional expense on complying with the CRS.

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