On December 26, 2013, the IRS released in Revenue Procedure 2014-10, which was renumbered on December 27, 2013 to Revenue Procedure 2014-13, the final foreign financial institution (FFI) agreement to implement the Foreign Account Tax Compliance Act (FATCA). The final agreement contains a number of changes and clarifications to the draft FFI Agreement (contained in Notice 2013-69).
As noted in the Revenue Procedure, the following are highlights of the changes:
- Several of the cross-references in the draft FFI agreement (notably in section 2) were modified in anticipation of two sets of temporary regulations which are expected to be published in early 2014:
- One set of temporary regulations (temporary chapter 4 regulations) will provide further clarifications and modifications to the final FATCA regulations issued in January 2013.
- A second set of temporary regulations (temporary coordination regulations) will provide coordinating rules under the current information reporting chapters of the Internal Revenue Code.
- The final FFI agreement contains revisions to correct minor technical errors in the draft FFI agreement, such as:
- An incorrect reference to an escrow procedure due to a change in circumstances of an account holder or payee was removed.
- The 30-day period for such change of circumstances in the draft FFI agreement was corrected to a 90-day period in the final FFI agreement.
- The final FFI agreement corrects the draft FFI agreement to remove the separate subsection for pooled reporting for a reporting Model 2 FFI. The types of income previously described in the draft FFI agreement were not chapter 4 reportable amounts and would not have been reported on Form 1042-S.
- Certain revisions were also made to further clarify the FFI agreement and conform it to the forthcoming temporary chapter 4 regulations, including:
- The terms 'chapter 4 withholding rate pool' (including the US payee pool) and 'chapter 4 reporting rate pool' were defined and clarified.
- The final FFI agreement provides that, with respect to calendar years 2015 and 2016, participating FFIs that are required to report foreign reportable amounts paid to nonparticipating FFIs shall report this information on Form 8966. To the extent provided in the final FFI agreement, a participating FFI may report all such payments made to nonparticipating FFIs.
The final FFI agreement also provides for a 2-year transition period during which a reporting Model 2 FFI may elect to apply the due diligence procedures described in the final FFI agreement in lieu of those in Annex I of the applicable Model 2 IGA. The final FFI agreement was also revised to reflect that this election is made by the reporting Model 2 FFI and not the reporting Model 2 IGA.