IRS Issues Guidance on Use of Foreign Financial Institution Agreement

IRS Issues Guidance on Use of Foreign Financial Institution Agreement

The IRS has issued guidance (Notice 2013-69) for foreign financial institutions (FFIs) entering into an FFI agreement with the IRS to be treated as a participating FFI or a reporting financial institution under an applicable Model 2 intergovernmental agreement. The guidance provides a draft FFI agreement that is to be finalized by December 31, 2013. An FFI that has entered into an FFI agreement with the IRS is treated as a participating FFI and isn't subject to withholding under <a href="/lr/resolve//cp2w" class="frllink">section 1471</a>. In January, Treasury and the IRS issued final regulations (T.D. 9610) under sections 1471 through <a href="/lr/resolve//cp7c" class="frllink">1474</a>. <a href="http://services.taxanalysts.com/taxbase/ta15.nsf/SecSearch/1.1471-4?OpenDocument" class="frllink">Reg. section 1.1471-4</a> provides the substantive requirements applicable to a participating FFI under the FFI agreement. Treasury has collaborated with other governments to develop two alternative model IGAs, including the Model 2 IGA, for instances when foreign law would prevent an FFI from complying with the terms of an FFI agreement. Notice 2013-69 describes the general responsibilities of participating FFIs and reporting Model 2 FFIs. A participating FFI must meet the requirements described in the guidance and in the FFI agreement. Unless modified by the terms of an applicable Model 2 IGA, a reporting Model 2 FFI must comply with the terms of the FFI agreement by fulfilling the responsibilities of a participating FFI provided in the FFI agreement. According to the guidance, Treasury and the IRS will issue regs to provide that withholding under <a href="/lr/resolve//cpgn" class="frllink">section 3406</a> won't apply to a reportable payment if a participating FFI (including a reporting Model 2 FFI) has withheld on the payment under <a href="http://services.taxanalysts.com/taxbase/ta15.nsf/SecSearch/1-1471-4(b)?OpenDocument#1.1471-4(b)" class="frllink">reg. section 1.1471-4(b)</a>. A reportable payment that isn't subject to withholding under chapter 4 remains subject to withholding under section 3406. Alternatively, a participating FFI may elect to satisfy its withholding obligations under reg. section 1.1471-4(b) for accounts held by recalcitrant account holders that are known U.S. persons by withholding under section 3406 at the backup withholding rate. Treasury and the IRS intend to modify the transitional reporting requirements under the current chapter 4 rules for calendar years 2015 and 2016 for payments of foreign reportable amounts made to nonparticipating FFIs. Under the modified rules, a participating FFI is only required to report, on Form 8966, foreign reportable amounts paid for a financial account that it maintains for a nonparticipating FFI. Subsequent regs under chapter 4 will be issued to provide that a passive nonfinancial foreign entity (NFFE) will not include an NFFE that is a direct reporting NFFE or a sponsored direct reporting NFFE. The current chapter 4 rules will be modified to provide that a passive NFFE doesn't include an NFFE that is acting as a qualified intermediary or that is a withholding foreign partnership or withholding foreign trust. Treasury and the IRS will modify the definition of U.S. person in the current chapter 4 rules to include a foreign insurance company that is not a specified insurance company and that elects under <a href="/lr/resolve//cnsw#cnsw-0000062" class="frllink">section 953(d)</a> to be subject to U.S. income tax as if it were a U.S. insurance company. The IRS will update all relevant forms to incorporate and implement the changes described in the guidance. The guidance provides procedures for FFIs to register for participating FFI or reporting Model 2 FFI status. The draft FFI agreement included in the guidance substantially incorporates the general requirements of an FFI agreement that are described in reg. section 1.1471-4.

T.D. 9610 <a href="/lr/resolve//dyys"> <img src="//s3.amazonaws.com/binary.taxnotes.com/image/etl/doclink.gif" border="0" alt="2013 TNT 13-6: IRS Final Regulations"/></a>. FATCA information <a href="/lr/resolve//f84f"> <img src="//s3.amazonaws.com/binary.taxnotes.com/image/etl/doclink.gif" border="0" alt="2013 TNT 210-20: Other IRS Documents"/></a>.

FFI agreement for Participating FFI and Reporting Model 2 FFI Notice 2013-69

The IRS has issued guidance for foreign financial institutions entering into an FFI agreement with the IRS to be treated as a participating FFI or a reporting financial institution under an applicable Model 2 intergovernmental agreement; the guidance provides a draft FFI agreement that is to be finalized by December 31, 2013.

The IRS has issued guidance (Notice 2013-69) for foreign financial institutions (FFIs) entering into an FFI agreement with the IRS to be treated as a participating FFI or a reporting financial institution under an applicable Model 2 intergovernmental agreement. The guidance provides a draft FFI agreement that is to be finalized by December 31, 2013. An FFI that has entered into an FFI agreement with the IRS is treated as a participating FFI and isn't subject to withholding under section 1471. In January, Treasury and the IRS issued final regulations (T.D. 9610) under sections 1471 through 1474. Reg. section 1.1471-4 provides the substantive requirements applicable to a participating FFI under the FFI agreement. Treasury has collaborated with other governments to develop two alternative model IGAs, including the Model 2 IGA, for instances when foreign law would prevent an FFI from complying with the terms of an FFI agreement. Notice 2013-69 describes the general responsibilities of participating FFIs and reporting Model 2 FFIs. A participating FFI must meet the requirements described in the guidance and in the FFI agreement. Unless modified by the terms of an applicable Model 2 IGA, a reporting Model 2 FFI must comply with the terms of the FFI agreement by fulfilling the responsibilities of a participating FFI provided in the FFI agreement. According to the guidance, Treasury and the IRS will issue regs to provide that withholding under section 3406 won't apply to a reportable payment if a participating FFI (including a reporting Model 2 FFI) has withheld on the payment under reg. section 1.1471-4(b). A reportable payment that isn't subject to withholding under chapter 4 remains subject to withholding under section 3406. Alternatively, a participating FFI may elect to satisfy its withholding obligations under reg. section 1.1471-4(b) for accounts held by recalcitrant account holders that are known U.S. persons by withholding under section 3406 at the backup withholding rate. Treasury and the IRS intend to modify the transitional reporting requirements under the current chapter 4 rules for calendar years 2015 and 2016 for payments of foreign reportable amounts made to nonparticipating FFIs. Under the modified rules, a participating FFI is only required to report, on Form 8966, foreign reportable amounts paid for a financial account that it maintains for a nonparticipating FFI. Subsequent regs under chapter 4 will be issued to provide that a passive nonfinancial foreign entity (NFFE) will not include an NFFE that is a direct reporting NFFE or a sponsored direct reporting NFFE. The current chapter 4 rules will be modified to provide that a passive NFFE doesn't include an NFFE that is acting as a qualified intermediary or that is a withholding foreign partnership or withholding foreign trust. Treasury and the IRS will modify the definition of U.S. person in the current chapter 4 rules to include a foreign insurance company that is not a specified insurance company and that elects under section 953(d) to be subject to U.S. income tax as if it were a U.S. insurance company. The IRS will update all relevant forms to incorporate and implement the changes described in the guidance. The guidance provides procedures for FFIs to register for participating FFI or reporting Model 2 FFI status. The draft FFI agreement included in the guidance substantially incorporates the general requirements of an FFI agreement that are described in reg. section 1.1471-4.

Section 1471 -- Foreign Financial Institution Withholding

Section 1472 -- Foreign Entity Withholding

Section 1473 -- Foreign Financial Institution Withholding Definitions

Section 1474 -- Foreign Institution Withholding Special Rules

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IRS Issues Guidance on Use of Foreign Financial Institution Agreement