Domestic payers of certain types of US-source income and foreign financial institutions (FFIs) must determine whether their payees and account holders are compliant with the Foreign Account Tax Compliance Act (FATCA) and, beginning later this year and continuing into future years, withhold up to 30% of the amount of the payment if the payee is not FATCA-compliant. The due diligence on a payee is reduced for entities that are resident in a country that has signed a Model 1 Intergovernmental Agreement (IGA) with the United States. Specifically, for payments made prior to January 1, 2015, a payer may treat a payee (or an account holder) as resident in an IGA jurisdiction (and, therefore, not subject to withholding) if the payee certifies that it is resident in such a jurisdiction.1 In Announcement 2014-17 (the Announcement), the Internal Revenue Service (IRS) indicated that through the end of 2014, it will allow payers and FFIs to treat entities organized in jurisdictions that have reached an agreement in substance on the terms of an IGA as resident in an IGA jurisdiction.
Simultaneously with the release of the Announcement, the IRS2 and the US Treasury Department3 (Treasury) provided a list of jurisdictions that are treated as having an IGA in effect. The initial list includes Australia, Brazil, the British Virgin Islands and Liechtenstein. Jurisdictions that reach agreements in substance on or after July 1, 2014, will not be included in the list of jurisdictions that are treated as having an IGA in effect until the IGA is signed.
On the flip side (payees and account holders), an FFI resident in, or organized under the laws of, a jurisdiction that is listed on the Treasury and IRS websites as having reached an agreement in substance will be permitted to register on the FATCA registration website consistent with its treatment under the relevant model IGA and will be permitted to certify its status as such to a withholding agent.
Jurisdictions can be removed from the list if it is determined that the jurisdiction is not taking the steps necessary to bring the IGA into force within a reasonable period of time or if the jurisdiction fails to sign the IGA by December 31, 2014.
Lastly, the IRS has pushed back the final date to register to ensure inclusion on the first public list of Global Intermediary Identification Numbers (GIIN). Rather than April 25, 2014, as originally announced, registrations must be finalized by May 5, 2014, to ensure registering FFIs that their GIINs will be included on the June 2 IRS FFI list. Further, registering FFIs that have registered by June 3, 2014 will be included on the July 1 IRS FFI List.
1 Temp. Treas. Reg. § 1.1471-3(d)(4)(4)(iv)(A).