IRS Adds FATCA FAQ On In-Substance IGAs

Within its list of frequently asked questions (FAQs) on issues associated with the requirements of the Foreign Account Tax Compliance Act (FATCA), the United States Internal Revenue Service (IRS) has provided added information for foreign financial institutions (FFIs) in jurisdictions with in-substance intergovernmental agreements (IGAs).

FATCA, which was enacted by the US Congress in 2010 and took effect on July 1, 2014, is intended to ensure that the IRS obtains information on financial accounts held at FFIs by US persons. Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.

To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, US Treasury has developed model IGAs. Under the terms of Model 1 IGAs FFIs will need to report information on financial accounts held by US persons to their jurisdictions’ tax authorities, which will then exchange the information with the IRS.

In addition, under transitional FATCA rules, the US Treasury Department will treat a jurisdiction as having an IGA in effect beyond December 31, 2014, as long as its terms have been reached in substance and the jurisdiction demonstrates a firm resolve to sign the agreement as soon as possible.

To take account of “in-substance” Model 1 IGAs, the IRS has also updated its list of FAQs by adding whether a reporting Model 1 FFI in such a jurisdiction would need to register and obtain a Global Intermediary Identification Number (GIIN) before January 1, 2015, to demonstrate its FATCA compliance.

The FAQ’s answer confirms that there is no change to the requirement that, for payments made on or after January 1, 2015, in order for withholding not to apply, a withholding agent may treat a reporting Model 1 FFI as a registered deemed-compliant FFI only if the withholding agent has a withholding certificate identifying the payee as a registered deemed-compliant FFI.

Therefore, a reporting Model 1 FFI should still register and obtain a GIIN to certify its status to a withholding agent, even if its jurisdiction’s Model 1 IGA remains in-substance. A reporting Model 1 FFI that has registered but not yet obtained a GIIN should indicate to its withholding agent that its GIIN is “applied for.”