FFIs have until July 31 to renew FFI agreements
TAX ALERT |
Over the past couple of months, several important Foreign Account Tax Compliance Act (FATCA) developments have occurred. Most recently, the IRS announced that foreign financial institutions (FFIs) have until July 31, 2017, to renew FFI agreements on its recently updated FFI registration system. Other news worthy development is that the IDES system will be open for testing June 19 through July 14, 2017. Additionally, the Cayman Islands has released a new version of its AEOI User Guide to assist FFI’s preparing for its upcoming June 30, 2017, deadline for filing Cayman notifications and the July 31, 2017, deadline for filing Cayman FATCA and Common Reporting Standard (CRS) reports.
FATCA FFI registration system updated to allow renewal of FFI agreements
The IRS recently announced that its FATCA FFI registration system has been updated to allow FFIs to renew their FFI agreements. See IRS FATCA News and Information. FFIs required to renew their agreements, such as those resident in countries with Model 2 intergovernmental agreements in effect, must do so by July 31, 2017, or their current FFI agreements will be treated as terminated as of Jan. 1, 2017, and they will be removed from the IRS published list of approved FFIs.
Having an FFI agreement terminated and being removed from the IRS published list of approved FFIs could ultimately result in significant exposure for FFIs since FATCA regulations require withholding agents to deduct FATCA withholding at a rate of 30 percent from withholdable payments (such as U.S. source interest or dividends) that are made to FFIs. FFIs can now determine whether they need to update their FFI agreement and, if so, edit their registration form and submit it to renew their FFI agreement by visiting the IRS’ FATCA registration website. Also, for more information on the new FFI agreement and who is required to renew, see RSM’s prior article, IRS opens 2017 with new FATCA agreements and regulations.
IDES system open for testing
Another important development that financial institutions (FIs) should be aware of is that the IRS has recently announced that the FATCA International Data Exchange Service (IDES) will be open for testing from June 19, 2017, at 8:00 AM ET to July 14, 2017, at 5:00 PM ET (UTC/GMT-5). IDES is a secure web application and electronic delivery point that FIs and Host Country Tax Authorities (HCTA) can use to transmit and exchange FATCA data with the United States. The test session will be open to users that have completed IDES enrollment by June 15, 2017, at 5:00 PM ET.
FIs that are residents of jurisdictions with Model 2 intergovernmental agreements in effect (such as Bermuda, for example) should enroll in IDES on or before June 15, 2017, to ensure that they can participate in testing. Testing systems and data files now will ensure that FIs have sufficient lead time to address potential errors and make any required modifications before the applicable FATCA report filing deadline (which varies by jurisdiction).
Cayman issues new AEOI user guide
On May 16, 2017, the Cayman Islands’ Department for International Tax Cooperation (DITC) released an updated version (v3.0) of its AEOI Portal User Guide that was drafted to assist FIs with addressing Cayman’s notification (registration) and reporting obligations under U.S. FATCA and the OECD’s CRS. The guide provides welcome clarification and details as FIs prepare to meet Cayman’s upcoming deadline for filing Cayman Notifications along with FATCA and CRS Reports by June 30 and July 31, 2017, respectively. New sections of the user guide clarify how FIs must fulfil their UK CDOT reporting obligations in 2017 using the CRS reporting function on Cayman’s portal. The guide also clarifies that Cayman’s AEOI portal no longer permits registration for reporting to the United Kingdom for purposes of complying with UK CDOT since separate UK CDOT reports are now covered by filing a UK CRS Report as of Jan. 1, 2017.
New draft instructions for Form 8957 issued
The IRS has released a draft of new instructions for Form 8957, Foreign Account Tax Compliance Act (FATCA) Registration, dated as of May 22, 2017. The draft instructions include cautionary language that they should not to be relied upon for filing purposes and are subject to change and to OMB approval before being officially released.
There are two notable changes in the new version of the draft instructions for Form 8957, see draft Form 8957 Instructions. First, beginning with 2017 renewals, qualified intermediaries, foreign withholding partnerships and foreign withholding trusts can no longer renew their agreements using Form 8957. Secondly, information concerning limited foreign financial institution and limited branch status has been removed to coincide with the FATCA regulations since the transition period for such status has expired.
As FIs prepare to file FATCA reports with the IRS and Cayman, modifications to their systems and procedures may be required to address the updates discussed above and to manage risk associated with noncompliance.