July 31, 2013
The Hiring Incentives to Restore Employment Act (the "HIRE Act"), enacted in 2010, contained provisions commonly referred to as "FATCA" that are intended to reduce the evasion of U.S. tax obligations by U.S. persons through the use of foreign entities. FATCA will generally impose a 30% withholding tax on all withholdable payments made to foreign financial institutions ("FFIs") and nonfinancial foreign entities ("NFFEs") unless they comply with the requirements imposed by FATCA. "Withholdable payments" are payments of interest, dividends, rents, salaries, and other fixed or determinable annual or periodical ("FDAP") gains, profits, and income from any U.S. source, as well as gross proceeds from the disposition of property that can produce U.S. source interest or dividends.
Since the enactment of FATCA, the Internal Revenue Service (the "IRS") has issued guidance under three substantive Notices. On January 17, 2013, Treasury and the IRS supplemented that guidance by issuing final regulations under FATCA (the "Final Regulations").
On July 12, 2013, Treasury and the IRS issued Notice 2013-43 (the "Notice"), announcing a six-month extension to the start of the FATCA withholding and account due diligence requirements, as well as additional guidance relating to the treatment of FFIs in jurisdictions that have signed intergovernmental agreements ("IGAs") with the United States relating to the implementation of FATCA.
Revised Implementation Timeline
Withholding agents will be required to begin withholding on withholdable payments made after June 30, 2014, which represents a six-month extension of the December 31, 2013, date provided in the Final Regulations. Similarly, the definition of "grandfathered obligation"–obligations with respect to which FATCA withholding is not required–will be revised to include obligations outstanding on July 1, 2014, also a six-month extension of the date provided in the Final Regulations.
New Account Opening Procedures
New account opening procedures specified in the Final Regulations do not apply to preexisting obligations. The definition of "preexisting obligation" will be modified to mean:
This also provides a six-month extension before withholding agents will be required to implement the new account opening procedures. Similar changes to new account opening procedures are expected in the IGA regime.
Diligence on Preexisting Obligations
Participating FFIs are required to complete due diligence on preexisting obligations by the effective date of their FFI Agreements. The Notice provides an FFI Agreement of a Participating FFI that registers and receives a Global Intermediary Identification Number or "GIIN" (an identification number for FFIs) on or before June 30, 2014, will have an effective date of June 30, 2014–effectively postponing the deadline for completing due diligence by six months. The deadline applicable to withholding agents other than Participating FFIs for completing due diligence on preexisting obligations is also postponed by six months to December 31, 2014. The Notice also defers the obligation to monitor preexisting accounts for enhanced review by one year. Similar changes to the due diligence procedures are expected in the IGA regime.
Participating FFI Reporting of U.S. Accounts
Participating FFIs are required under the Final Regulations to file information reports on their U.S. accounts with respect to 2013 and 2014 no later than March 31, 2015. The Notice explains that these rules will be modified so that deadline applies only to the 2014 calendar year–no reporting on U.S. accounts for 2013 is required. This modification will also be extended to the IGA regime.
The web portal for FATCA registration is projected to be accessible to financial institutions on August 19, 2013. Other key registration dates will be extended by six months:
Withholding Documentation and Agreements
Certain withholding documentation generally expires on the last day of the third calendar year following the year such documentation is provided to the withholding agent. The Notice provides that any such documentation set to expire on December 31, 2013, will expire instead on June 30, 2014, unless facts otherwise suggest the documentation is no longer reliable. The same six-month extension applies to qualified intermediary, withholding partnership, and withholding trust agreements that would otherwise expire on December 31, 2013.
Foreign-Targeted Registered Obligation Rules
Previous guidance provided that a withholding agent paying interest on registered notes issued after March 18, 2012, and before January 1, 2014, may apply the foreign-targeted registered obligation rules if the rules’ requirements were satisfied. Because this transition guidance was intended to coincide with the implementation of FATCA, the issuance window will be extended to July 1, 2014.
Financial Institutions in Jurisdictions with IGAs
The Notice provides that Treasury and the IRS intend to treat as having an IGA in effect jurisdictions that have signed, but have not yet brought into force, an IGA. This would permit the jurisdictions’ resident financial institutions to register via the FATCA registration website. Removal from the list of jurisdictions treated as having an IGA in effect would cause resident financial institutions to lose the status provided under the IGA.
 An FFI is any financial institution that is not a U.S. person. FATCA requires a withholding agent to deduct and withhold 30% of any withholdable payment made to an FFI, unless the FFI enters into an FFI Agreement or otherwise falls within an excepted category. NFFE is defined broadly to include any foreign entity that is not a financial institution, subject to certain exceptions. Withholding agents must also deduct and withhold 30% of any withholdable payment to an NFFE unless the NFFE provides the appropriate certification as to its owners.
 On August 27, 2010, the U.S. Treasury and the IRS published Notice 2010-60, providing initial guidance regarding FATCA. Notice 2010-60 was supplemented on April 8, 2011, by Notice 2011-34, which clarified and replaced some of the earlier guidance. Notice 2011-53, released July 14, 2011, described a timeline for phased implementation of the FATCA provisions. These Notices are explained more fully in our previous client alerts: IRS Issues Guidance on New FATCA Withholding Obligations, distributed on October 7, 2010, and IRS Notices Extend Date for Implementation of FATCA Provisions of the HIRE Act and Provide Additional Guidance, distributed on August 9, 2011.
 The Final Regulations are explained more fully in our previous client alert, IRS Issues Detailed Final Regulations Under the FATCA Provisions of the HIRE Act, distributed on January 22, 2013.
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these developments. If you have any questions, please contact one of the Gibson Dunn lawyers listed below or your regular Gibson Dunn contacts.
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Paul S. Issler (213-229-7763, email@example.com)
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