The IRS has issued Notice 2015-66, which announces the IRS and Treasury’s intent to amend Sections 1471- 1474 of the Foreign Account Tax Compliance Act (FATCA). This Notice extends the time period applicable to the following transitional rules:
- The date for when withholding on gross proceeds and foreign pass thru payments will begin. The expected amendment will delay withholding until December 31, 2018.
- The use of limited branches and limited foreign financial institutions (limited FFIs); and
- The deadline for a sponsoring entity to register its sponsored entities and redocument such entities with withholding agents. The expected amendment will require sponsoring entities to register their sponsored registered deemed-compliant FFIs and sponsored direct reporting NFFEs by January 1, 2017.
Even Though Deadlines Extended, Penalties Will Still Be Severe for Noncompliance In early September, the IRS announced through this Notice that it was delaying the deadline required for financial institutions to avoid the 30 percent tax. Instead of starting to levy such transactional taxes in 2017, Forbes reported that the US will wait until 2019. Forbes also reported that besides the tax for noncompliance, the US would also freeze financial institutions out of US financial markets. This shows there will be little recourse for banks, even those known to be notorious tax havens. They must comply with FATCA or FFIs will face crippling ramifications. Major Reporting Deadline Extensions for Model 1 IGAs According to The National Law Review, the US has entered into intergovernmental agreements with some countries in principle, but they may not have finalized the agreement. If such countries show that they are trying to comply with the IGA’s provisions, they will not be subject to the 30 percent tax. The deadline for HCTAs and the IRS to exchange information under the IGA was scheduled for Sept. 30, 2015. However, if the IGA has not taken effect yet, the deadline is moved to Sept. 30, 2016. This means any information that would have been reportable under the IGA on September 30, 2015 must now be exchanged by September 30, 2016, together with any information that is reportable under the IGA on September 30, 2016. The National Law Review also reported that for countries with IGAs that are in full effect, they may be able to get an extension on the reporting deadline. But to get an extension, a country must have had notified the US before the Sept. 30, 2015 deadline and shown that it is making a good-faith effort to exchange the required information as soon as possible. FFIs Must Still Report to HCTAs on Time For instance, previous to this Notice being issued, several jurisdictions, including the Philippines, Malaysia, and Croatia, had already announced that they will not exchange information for tax year 2014 until next year. However, it is important to note that the extension of this exchange period between countries does not extend the due date for FFIs to report the initial information required by FATCA to their local HCTA. This includes the name, address, account number and balances of accounts held by US individuals and businesses opened after July 1, 2014. This underscores the complexity of FATCA since countries are having a problem complying on time. Nevertheless, FFIs must be prepared to conform to the original deadlines set out by FATCA, including identifying, gathering and transmitting the initial required data to local HCTAs before countries send this information over to the Treasury in the US.
