FFIs are warned to expect notices and confirm classifications
The Internal Revenue Service (IRS) has recently announced that it intends to upgrade the Foreign Account Tax Compliance Act (FATCA) FFI Registration System to include updated classifications, certifications of pre-existing accounts (COPA) and periodic certifications. (See IRS Notices\FATCA News & Information) With this announcement, the Service is also set to issue notices to entities requiring them to verify or update their FATCA classification as reflected in the system before upgrades are complete. In fact, many entities have already started receiving notices on July 25,2018. These notices prompt users to confirm a pre-populated FATCA classification for the FFI and then, depending on the FATCA classification entered, the system will automatically generate a notification as to whether the entity is required to certify its compliance with preexisting account due diligence and periodic review requirements. All registered entities are therefore advised to log into the system now to update or confirm their FATCA classifications as prompted and to verify email addresses for their Responsible Officers (ROs) and key contact persons to avoid missing notices. Even entities that do not have a certification requirement (such as, certain Reporting Model 1 IGA Foreign Financial Institutions (FFIs) should update their FATCA classification to avoid inapplicable certification-related notices in the future.
What is the FFI registration system and what action is required?
The IRS’ FFI Registration System is a secure, web-based system that financial institutions (FIs) and direct reporting non-financial foreign entities (NFFEs) can use to register under FATCA, to renew FFI agreements, and to certify their compliance with pre-existing account due diligence and periodic review requirements as set forth under FATCA. While it is expected that no action beyond updating its FATCA classification will be required for most FFIs (such as Reporting Model 1 FFIs), many (such as Reporting Model 2 FFIs and others listed in the table below) will be required to take additional steps in order to certify compliance with pre-existing account and periodic review requirements. These additional steps may ultimately prove to be a particularly daunting task for ROs of FFIs if they have not implemented policies and procedures or an internal controls framework designed to support the required certifications for monitoring compliance with their FFI agreements.
What is the applicable deadline?
In a previous announcement, the IRS delayed the statutory deadline for RO Certifications from July 1, 2018 since the system was not ready and indicated that FFIs will have three (3) months from the date that the certification portal opens to provide the certifications. (See our prior discussion at the attached link.) The IRS further indicated that it plans to notify FIs of the official certification deadline via the FATCA registration home page between one and two weeks after the FATCA portal is opened. The certifications can only be made on the portal by answering a series of qualifier questions. It is therefore critical that FFIs log into the system now to update or confirm their FATCA classification and to familiarize themselves with these questions before the system is finalized. More information on the FATCA Certifications can be found on the IRS Draft FATCA Certifications webpage.
Who is subject to the certification requirements?
According to the announcement, ROs of FFIs with certain FATCA classifications reflected in question 4 of the registration system will be required to comply with certification of preexisting accounts (COPA) and periodic review requirements as follows:
| Financial Institution’s FATCA Classification in its Country/Jurisdiction of Tax Residence | Certification required | |
| COPA | Periodic | |
| Participating FFI, including a Reporting Financial Institution under a Model 2 IGA | Yes | Yes |
| Registered Deemed-Compliant FFI that is a Local FFI | Yes | Yes |
| Registered Deemed-Compliant FFI that is a Non-Reporting Member of a PFFI Group | No | Yes |
| Registered Deemed-Compliant FFI that is a Qualified Collective Investment Vehicle | No | Yes |
| Registered Deemed-Compliant FFI that is a Qualified Credit Card Issuer or Servicer | No | Yes |
| Registered Deemed-Compliant FFI that is a Restricted Fund | Yes | Yes |
| Reporting Financial Institution under a Model 1 IGA | No, except on behalf of branches operating outside of Model 1 jurisdictions (other than related branches) | No, except on behalf of branches operating outside of Model 1 jurisdictions (other than related branches) |
| Direct Reporting NFFE | No | Yes |
| Sponsoring Entity of Sponsored Direct Reporting NFFEs | No | Yes |
| Sponsoring Entity of Sponsored FFIs | Yes | Yes |
| Sponsoring Entity of Sponsored FFIs and Sponsored Direct Reporting NFFEs | Yes, on behalf of Sponsored FFIs only | Yes |
| Trustee of a Trustee-Documented Trust | No | Yes |
| U.S. Financial Institution | No | No |
Additionally, with this most recent announcement, the IRS has stated that the registration portal will be upgraded to include the following features:
- Update to existing FATCA classification options
Classification options will now include, for example, Participating FFI (including a Reporting FI under a Model 2 IGA), Registered Deemed-Compliant FFI that is a Local FFI, Registered Deemed-Compliant FFI that is a Non-Reporting Member of a PFFI Group, and others. All FFIs must select a FATCA classification. - Certification of pre-existing accounts (COPA)
The COPA will now be available from the home page for entities with Approved Status. In order to complete the certification, Responsible Officers (ROs) will be required to answer several qualifying questions and to complete certification questions specific to the entities’ classification. - Periodic certification
Entities required to have a Period Certification – a reoccurring certification generally following the third full year of an entities effective date – will now be able to update that certification form their home page. As with the COPA, the RO for entities with an Approved Status will be required to answer several qualifier questions, and then complete certification questions specific to the entities classification.
It is crucial to note that the portal applies to FFI Responsible Officer (RO) certifications only, and cannot be used for Qualified Intermediary (QI), Withholding Foreign Partnership (WP), and Withholding Foreign Trust (WT) certifications. Generally, the certification due date for QI/WP/WT entities that have selected 2015 or 2016 for their periodic review was July 1, 2018, which can be extended to Sept. 1, 2018, and should be made through the QI/WP/WT Application and Account Management System.
As mentioned above, FFIs should ensure that their login credentials are up to date, must verify that their FATCA status is correct, and should be prepared to update and submit any required certifications as the upgrades are implemented. Those who fail to update their FATCA status or email addresses before the upgrades occur risk not receiving notices alerting them to due dates for pending certifications, or may receive incorrect notices regarding certification requirements. The registration system will suggest the certification(s) for an entity based on its FATCA classification as reflected in question 4 of the registration system. Therefore, even entities that do not have a certification requirement (such as, certain Reporting Model 1 IGA FIs) should update their FATCA classification to avoid inapplicable certification-related notices in the future.
More information on FATCA Certifications can be found on the IRS Draft FATCA Certifications webpage.
Finally, for more information on RSM’s FATCA Registration or Responsible Officer Certification services, please refer to our FATCA landing page or contact Aureon.Herron-Hinds@rsmus.com.
