IRS Delays Certain FATCA Deadlines
The IRS released an announcement that delays certain deadlines under the Foreign Account Tax Compliance Act (FATCA) and provides additional guidance on grandfathered obligations.
On October 24, 2012, the IRS released Announcement 2012-42 (Announcement) which delays certain deadlines under the Foreign Account Tax Compliance Act (FATCA) and provides additional guidance on grandfathered obligations. These changes were made in response to numerous comments about practical issues with FATCA implementation on the timelines in the proposed treasury regulations on FATCA. The revised rules in the Announcement generally track changes that were made by the FATCA intergovernmental agreements and will be incorporated into the final FATCA regulations which are expected to be released later this year.
Significantly, the Announcement delays FATCA withholding on "gross proceeds" by two years. Under the Announcement, FATCA withholding will apply to payments of gross proceeds from the sale of a US issuer's debt or equity (including repayments of the principal amount of debt) made on or after January 1, 2017 to a FATCA noncompliant foreign financial institution (FFI) or non-financial foreign entity (NFFE).
The Announcement also delays the due date for the first information report of a participating FFI with respect to its US accounts. Information reports for calendar years 2013 and 2014 are now required to be filed not later than March 31, 2015.
For grandfathered obligations, the Announcement expands the definition to include three additional categories of obligations:
Any obligation that produces or could produce a foreign passthru payment and that cannot produce a withholdable payment, provided that the obligation is outstanding as of the date that is six months after the date on which final regulations defining the term "foreign passthru payment" are filed with the Federal Register.
Any instrument that gives rise to a withholdable payment solely because the instrument is treated as giving rise to a dividend equivalent under IRC Section 871(m), provided that the instrument is outstanding on the date that is six months after the date on which instruments of its type first become subject to that treatment.
Any obligation to make a payment with respect to, or to repay, collateral posted to secure obligations under a notional principal contract that is a grandfathered obligation.
The Announcement also delays certain timelines for withholding agents and FFIs to complete due diligence and other requirements, including:
Changing the timeline for new account opening procedures to January 1, 2014.
Modifying the definition of the term "preexisting obligation."
Providing transition rules for completing due diligence on preexisting obligations.
For more information about FATCA, see Practice Note, What's Market: FATCA Provisions in Loan Agreements and Articles, Impact of FATCA on Foreign Funds and FATCA: sweeping international tax obligations. For more information about the FATCA intergovernmental agreements, see Legal Updates, Model Intergovernmental Agreement to Implement FATCA Published, Model II Announced for Intergovernmental Framework to Implement FATCA and US and UK Sign Agreement to Implement FATCA.