IRS grants FFIs additional time to renew their FATCA agreements
TAX ALERT |
In a recent update to the Foreign Account Tax Compliance Act (FATCA) frequently asked questions (FAQs) webpage (see FATCA FAQs), the IRS has announced that foreign financial institutions (FFIs), otherwise in compliance with the terms of their FFI agreements, now have until October 24, 2017 to renew such agreements. Prior to this update, FFIs required to renew their agreements – such as those residing in countries with Model 2 intergovernmental agreements in effect – had until July 31, 2017 to do so.
Pursuant to certain FATCA regulations, withholding agents are generally required to withhold on certain payments made to an FFI at a rate of 30 percent, unless the FFI has entered into a valid “FFI Agreement” with the U.S. These FFI agreements require, among other things, FFIs to report to the U.S. certain information regarding U.S. accounts of the FFI.
FFIs that fail to renew their agreements are treated as having terminated those agreements as of Jan. 1, 2017 and will be removed from the IRS published list of approved FFIs. Accordingly, under the FATCA regulations, withholding agents will be required to deduct FATCA withholding on certain U.S. source payments (such as interest and dividends) made to FFIs at a rate of 30 percent.
For those institutions that are unsure as to whether they need to renew their FFI agreements, the IRS FATCA registration website may be used to both determine whether they need to update their FFI agreement and, if so, to update their registration form and renew an FFI agreement.
FFIs that have not yet given consideration as to whether they need to review their FFI agreements, or those FFIs that missed the initial deadline to do so, should take careful note of this relief, as failure to renew may result in significant and unexpected withholding on certain U.S source income.
For more information on FFI agreements, see RSM’s prior article: IRS opens 2017 with new FATCA agreements and regulations.