Notice 2015-66

Extension of FATCA Transitional Rules for Gross Proceeds, Foreign Passthru Payments, Limited Branches and Limited FFIs, and Sponsored Entities; Modification to Grandfathered Obligation Rule with Respect to Collateral; and Reporting of 2014 Information under a Model 1 IGA

US Internal Revenue Service Notice 2015-66

Notice 2015-66 makes changes to:

  • Withholding
    • Gross Proceeds delayed until 2019
    • Foreign Passthru Payments delayed until 2019
    • Grandfathering
      • A substitute payment made with respect to a grandfathered obligation that has been posted as collateral should also be treated as a payment made under a grandfathered obligation, and therefore not subject to withholding under section 1471 or section 1472.
      • Modifications to Pro Rata Rule for Pooled Collateral: amendment the regulation to provide that the pro rata rule is not mandatory.
  • Due Diligence
    • Extends Limited Branch and Limited FFI Status
    • Sponsored Entities – extended reliance on Sponsoring Entity GIIN
    • Extended reliance on Withholding Certificates from
      • Sponsored Deemed Compliant FFIs and
      • Direct Reporting NFFEs

  • Reporting
  • Those Host Country Tax Authorities in IGA Model 1 jurisdictions that have not reported to the US IRS by September 2015 (on 2014) have been granted the facility of taking up to September 2016 to report (on both 2014 and 2015).
  • Each Model 1 jurisdiction that seeks to exercise this facility must take the appropriate steps. Amongst those jurisdictions that have already indicated a desire to take advantage of this facility are:
  • Philippines:
  • Croatia:
    • The Croatian tax authority announced September 10, 2015 that it would not implement reporting provisions of the intergovernmental agreement it signed with the United States by the September 30 deadline in the IGA but that Croatia would not be subject to the withholding tax.
    • Croatia will postpone implementation of the IGA until no later than September 30, 2016, according to a three-sentence statement from the tax authority.
  • Belgium:
    • FATCA reporting for 2014 must be completed prior to the 10th day following the publication of the Belgian FATCA law in the Belgian official gazette. Currently, the law has not been enacted, but it is anticipated that the law allowing for implementation of the FATCA regime will be passed in Belgium before the end of 2015.
Effect Page of Notice 2015-66 Affected § Treasury and IRS intended amendments
Withholding Gross Proceeds delayed until 2019 11 §1.1473-1(a) [A]mend the chapter 4 regulations under section 1473 to extend the start date of gross proceeds withholding by providing that the definition of the term withholdable payment means any payment of U.S. source FDAP income, and for sales or other dispositions occurring after December 31, 2018, any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends that are U.S. source FDAP income.
Withholding on Foreign Passthru Payments delayed until 2019 11 1471(b)(1)(D)(i); §1.1471-5(h)(2); §1.1471-4(b)(4) [A]mend the regulations under section 1471 to extend the start date of withholding on foreign passthru payments to provide that a participating FFI is not required to withhold tax on a foreign passthru payment made to a recalcitrant account holder or a nonparticipating FFI before the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term foreign passthru payment.
Chapter Four Classifications: Extension of Limited Branch and Limited FFI Statuses. (After December 31, 2015, all limited FFI and limited branch registrations will be placed in “registration incomplete” status on their online FATCA account. Limited FFIs and limited branches that seek to continue such status during the 2016 calendar year will be required to edit and resubmit their registrations after December 31, 2015, on the FATCA registration website.) 12, 13 §1.1471-4(a)(4); §1.1471-4(e)(2)(i); §1.1471-4(e)(3); §§1.1471-4(e)(2)(v) and (3)(iv), [A]mend the regulations under section 1471 to provide that the availability of limited branch and limited FFI statuses will terminate on January 1, 2017. A limited FFI or limited branch that becomes able to comply with the terms of the FFI agreement or becomes a participating FFI or deemed-compliant FFI pursuant to an applicable IGA should amend its registration to reflect its modified status. FFIs that continue to operate after December 31, 2016, in jurisdictions where they cannot comply with the terms of an FFI agreement due to local law will jeopardize the chapter 4 status of participating FFIs and registered deemed-compliant FFIs (other than FFIs covered by an IGA) in the group. Branches that continue to operate after December 31, 2016, in jurisdictions where they cannot comply with the terms of an FFI agreement due to local law will jeopardize the participating FFI status of the FFI of which the branch is part (as well as jeopardize any branches of the FFI that have participating FFI status under the FFI agreement), subject to the terms of an applicable IGA.
After December 31, 2015, all limited FFI and limited branch registrations will be placed in “registration incomplete” status on their online FATCA account. Limited FFIs and limited branches that seek to continue such status during the 2016 calendar year will be required to edit and resubmit their registrations after December 31, 2015, on the FATCA registration website.
FATCA CDD: Extension of time to Register Sponsored Entities and Extension of Reliance on Sponsoring Entity GIINs 13, 14 §1.1471-5(f)(1)(i)(F)(1) or (2); §1.1471-3(e)(3)(iv)(B) (cross-referenced in §1.1471-3(d)(4)(i)); §1.1472-1(c)(3). [A]mend the regulations under sections 1471 and 1472 to provide that sponsoring entities must register their sponsored registered deemed-compliant FFIs and sponsored direct reporting NFFEs by January 1, 2017.

Beginning on such date, sponsoring entities must use the GIIN of the sponsored entity when reporting with respect to the sponsored entity on Form 8966 (FATCA Report) and must provide the GIIN to withholding agents making payments to the sponsored entity.

Sponsored investment entities and sponsored controlled foreign corporations covered by Annex II of a Model 1 IGA will maintain their deemed-compliant status as long as they are registered by the sponsoring entity on or before the later of December 31, 2016, and the date that is 90 days after a U.S. reportable account is first identified. Sponsored investment entities and sponsored controlled foreign corporations covered by Annex II of a Model 2 IGA will maintain their deemed-compliant status as long as they are registered by the sponsoring entity on or before December 31, 2016.

FATCA CDD: Extend permitted reliance on W/H Certs from Sponsored DC FFIs and DR NFFEs that have only the Sponsoring Entity’s GIIN for payments made prior to Jan 1, 2017 14, 15 §1.1471-3(e)(3)(iv)(B) [A]mend the regulations under section 1471 to provide that withholding agents can continue to rely on withholding certificates from sponsored registered deemed-compliant FFIs and sponsored direct reporting NFFEs that have only the sponsoring entity’s GIIN for payments made prior to January 1, 2017. For a payment made on or after January 1, 2017, a withholding agent will be required to obtain the GIIN of a payee that is a sponsored registered deemed-compliant FFI or a sponsored direct reporting NFFE by obtaining either: (1) a withholding certificate from the payee that includes its GIIN, or (2) if the withholding agent already has on file a withholding certificate for the payee that includes the GIIN of the sponsoring entity, oral or written confirmation of the payee’s GIIN (such as by e-mail). If a withholding agent obtains oral or written confirmation of the payee’s GIIN, it will be required to retain a record of such information, which will become part of the withholding certificate. Whether the withholding agent receives the GIIN through a new withholding certificate, or by oral or written confirmation, the withholding agent will have 90 days from the date it obtains the GIIN to verify its accuracy against the published IRS FFI list. Because withholding agents will be required to obtain the GIIN of each sponsored entity for payments made after December 31, 2016, sponsoring entities should consider registering to obtain GIINs well in advance of January 1, 2017, in order to give withholding agents sufficient time to complete this requirement (and thereby avoid being withheld upon).
Grandfathering: Modifications to Pro Rata Rule for Pooled Collateral:
Treat any collateral that secures both grandfathered obligations and obligations that are not grandfathered as posted to secure only obligations that are not grandfathered, rather than applying the pro rata rule, and accordingly to withhold on all payments made with respect to the collateral.
15, 16 §1.1471-2(b)(2)(i)(A)(3) [A]mend §1.1471-2(b)(2)(i)(A)(3) to provide that the pro rata rule is not mandatory.
Grandfathering: A substitute payment made with respect to a grandfathered obligation that has been posted as collateral should also be treated as a payment made under a grandfathered obligation, and therefore not subject to withholding under section 1471 or section 1472 16, 17 §1.1471-2(b)(2)(i)(A) [A]mend the definition of grandfathered obligation in §1.1471-2(b)(2)(i)(A) to include any obligation that gives rise to substitute payments and that is created as a result of the payee posting collateral that is otherwise treated as a grandfathered obligation under §1.1471-2(b)(2)(i)(A)(1).