A group of influential U.S. banking associations – the American Bankers Association, the Clearing House Association L.L.C., the Institute of International Bankers, and the Securities Industry and Financial Markets Association – have formally requested that the Treasury Department and Internal Revenue Service further delay the timeline for implementation of the Foreign Account Tax Compliance Act (FATCA). (A copy of their joint letter is available here.) These Associations request additional time because of the significant compliance challenges that FATCA imposes on banks and financial institutions, as well as the limited progress the U.S. has made to date in negotiating Intergovernmental Agreements (IGAs) to facilitate FATCA implementation:
Like the Treasury and IRS, banks and securities firms are working diligently to implement FATCA. However, without the Final Guidance firms cannot complete their implementation plans, finalize budgets, prepare needed written procedures, hire and train internal personnel, educate clients, and develop and test the systems changes required for compliance with FATCA’s requirements. There also remain significant gaps in guidance and numerous unanswered implementation questions that must be addressed by the Service. Further, as discussed below, implementing the requirements of IGAs presents significant additional challenges. Under the current timeline, there is less than 8 full months between now and July 1, 2014, the first scheduled FATCA implementation date. The Associations respectfully submit that this is insufficient time to achieve the effective, full implementation of FATCA.
Specifically, the Associations seek extensions of the following FATCA deadlines “to help ensure a smooth transition to the FATCA regime,” “minimize the prospects of over withholding,” and avoid the “potential for significant disruption to financial markets”:
- Timeline for Withholding – an additional six-month extension for withholding that is scheduled to take place beginning on July 1, 2014, so that withholding begins with payments made after December 31, 2014.
- Expiring Withholding Documentation– an additional six-month extension for withholding documentation set to expire on June 30, 2014, so that such documentation would expire on December 31, 2014. The Associations point out that mid-year effective dates present significant compliance challenges: “Since information reporting and withholding systems are based on the calendar year, we have a strong preference for January 1 effective dates. The mid-year effective date for withholding and due diligence procedures, as well as the mid-year expiration date for Forms W-8, presents an additional and unexpected challenge for FATCA implementation teams.”
- Due Date for Reporting – FATCA reporting for 2014 (via Form 8966) should apply only to accounts designated by a participating FFI as held by a U.S. citizen or resident on December 31, 2014, and identifiable via electronic search. The Associations also requested that reporting for calendar year 2014 be delayed one year so that reporting for calendar years 2014 and 2015 would be provided by March 31, 2016.
- Date of New Account Opening Procedures – a six-month extension to January 1, 2015, to implement new account opening procedures.
- Obligations on Preexisting Accounts – due diligence for prima facie FFIs should be required by July 1, 2015.
The Associations further point out that FATCA implementation has been impacted by the lengthy process of negotiating Intergovernmental Agreements (IGAs) between the U.S. and Treasury. As noted in a prior post, to date the U.S. has executed 10 IGAs, including the most recent IGA with France announced last week. The Associations expressed concern that global financial institutions doing business in IGA jurisdictions will be required to implement FATCA requirements pursuant to both Treasury regulations and the varying IGA requirements. In addition, of the ten IGAs that have been signed so far, only the United Kingdom has issued guidance for implementation. Under these circumstances, the Associations note that “banks and securities firms still are faced with the prospect of being required to program their systems for the FATCA regulations and then having to subsequently reprogram these systems and revise their procedures on a country-by-country basis as IGAs are implemented and local guidance is released.” It is the position of the Associations that FATCA implementation should be delayed to permit the U.S. government sufficient time to conclude additional IGAs so that financial institutions only have to adjust their systems one time.
On a related note, Dolores W. Gregory of BNA Bloomberg reports that more than 6,700 financial institutions from around the world have tested the FATCA online portal to date, according to Michael Danilack, IRS Deputy Commissioner (International). Danilack disputed reports that the website was not working well and was crashing. The website is expected to go “live” on January 1, 2014, and will officially accept financial institution registrations at that time.