The Internal Revenue Service (IRS) and the US Department of the Treasury (Treasury) issued Notice 2013-43 (Notice) today announcing revised timelines for implementing various provisions under the Foreign Account Tax Compliance Act (FATCA). The Notice also provides additional guidance concerning financial institutions in jurisdictions that have signed an intergovernmental agreement (IGA) but have not yet enacted legislation bringing it into force. By extending the timelines, the Notice also provides (1) the IRS more time to issue the necessary forms, guidance, clarification, and interpretation, (2) Treasury and potential FATCA partners more time to agree to and sign IGAs and (3) entities around the world more time to implement changes in order to be FATCA / IGA compliant.
FATCA requires foreign financial institutions (FFIs) and US withholding agents to implement new procedures for tax information reporting and withholding, account identification, and documentation. It also requires certain FFIs to enter into an agreement with the US (an FFI Agreement). As an alternative, certain countries have entered into IGAs with the US to overcome legal impediments that prevented FFIs from entering into FFI Agreements with the US.
FATCA’s provisions were scheduled to become effective according to a phased implementation schedule beginning January 1, 2014 and continuing through 2017. Commentators have indicated the schedule did not provide sufficient time to modify current business practices and to make necessary modifications to systems and processes. In addition, they have noted that continued uncertainty about whether a future IGA will be treated as being in effect in a particular jurisdiction further hinders the ability to comply on a timely basis.
In response to these comments, Treasury and the IRS are postponing by six months many of the provisions that were scheduled to become effective in 2014, including the start of FATCA withholding, account documentation, and due diligence requirements, the earliest effective date of an FFI Agreement and various other requirements. Treasury has published and plans to update a list of countries that will be treated as having an IGA in effect, even though local legislation to implement the IGA may not have entered into force by July 1, 2014.