July 16th, 2013
As many have noted before, FATCA is complicated. It will be difficult to implement. IRS and Treasury have known that for a long time; after all, the first set of final regulations was over 500 pages, and they don’t cover everything. Add to that the complication of entering into intergovernmental agreements with, ideally, every nation on earth, and you can see that there’s a logistical mess. And that’s even before taking into account the continuing pressure to cut the IRS budget – the latest House budget would cut IRS funding by 24%. Their resources are already strained, but they have a deadline to meet. What to do? Extend the deadline.
On July 12, the IRS released Notice 2013-43, which provides some taxpayer relief as the IRS continues to struggle to get the compliance mechanisms in place and Treasury continues to negotiate intergovernmental agreements that are intended to ease foreigners’ compliance burdens. Among other things, the notice provides:
- Delay of registration. In order to avoid withholding on payments to them, foreign financial institutions need to register on the IRS FATCA portal. The FATCA registration portal was supposed to be online by July 15, but currently is not projected to be available until August 19, and no registration submissions will be finalized until January 1, 2014. This should give financial institutions time to familiarize themselves with the registration process, and equally importantly, give the IRS time to get the bugs out.
- Delay of withholding. Withholding was originally scheduled to start on January 1, 2014. Given the delay in FATCA portal setup, the IRS will not require any FATCA withholding until July 1, 2014.
- Change in reporting obligations. The first year report, Due on March 31, 2015, will require reporting only with respect to 2014. No FATCA reporting will be required with respect to 2013.
- Automatic extension of documentation. “Chapter 3” withholding certificates (i.e. Forms W-8), as well as qualified intermediary, withholding partnership, and withholding trust agreements, that otherwise were scheduled to expire on December 31, 2013 will instead expire on June 30, 2014.
- Treatment of countries with signed Intergovernmental Agreements. Financial Institutions in countries that have intergovernmental agreements (IGAs) in force generally are subject to a less burdensome set of reporting rules. However, while more and more countries are signing IGAs, not many have been brought into force. The notice provides that any country with a signed IGA will be treated as having an IGA in force for now, and financial institutions in that country can operate as if the IGA were in force. If that country fails to take steps necessary to bring the IGA into force within a reasonable amount of time, it will be removed from the list of qualified jurisdictions and the financial institutions in that country will have to update their policies – and their FATCA registration.
As always, if you have specific questions, you can contact Shapiro Tax Law LLC.