In an unexpected move, the US Department of the Treasury last week acted to extend the deadline by which foreign governments are required to provide information to the Internal Revenue Service (IRS) under the terms of the Foreign Account Tax Compliance Act (FATCA). In addition, the timeframes for which certain FATCA transitional rules will apply were also extended.
Extension to IGA reporting deadline
The initial deadline of 30 September 2015 for foreign governments to report to the IRS certain data collated about American taxpayers’ bank accounts and other interests outside of the US has been put back until 30 September 2016. This one year extension applies to all jurisdictions which have signed a Model 1A type inter-governmental agreement (IGA) with the US to implement FATCA.
Under a Model 1A IGA, Foreign Financial Institutions (FFIs), which includes certain trusts and privately held companies considered tax resident in the relevant foreign jurisdiction, are required to make annual reports of their US clients’ financial affairs to their own domestic tax authority. This information is then provided in bulk to the IRS.
The main reason for the delay is that many of the 112 jurisdictions that have either signed a Model 1 IGA, or are accepted by the US as having done so in principle, are not yet ready to begin reporting. Several have not even enacted legislation to implement their IGAs, without which they are legally unable to exchange tax information with the US.
A corollary of the postponement is that the US also benefit from an additional year with which to collate information about individuals resident in the US, which is required to be provided to its Model 1 IGA partners under the reciprocity terms of the Model 1 IGA.
For non-compliant US taxpayers who are dealing exclusively with Model 1A IGA FFIs, the delay also gives extra time for them to take steps to bring themselves into compliance with their US tax affairs through use of the IRS’ various disclosure programs.
The deadline extension does not apply to jurisdictions which have signed a Model 1B IGA (i.e. non-reciprocal) with the IRS.
Other extensions
The announcement also extends the following:
– The date for when FATCA withholding on gross proceeds is extended from sales occurring after 31 December 2016, to sales occurring after 3 1December 2018
– The date for when FATCA withholding on foreign ’passthru’ payments is extended from 1 January 2017 to 1 January 2019
– The deadline for a sponsoring entity to register its sponsored entities, and re-document such entities with withholding agents, is extended to 1 January 2017. In addition, withholding agents will be able to continue to rely on withholding certificates (i.e. Forms W-8) from sponsored registered deemed compliant FFIs which only contain the sponsoring entity’s GIIN for payments made prior to this date.
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