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United States: New FATCA FAQ on Model 1 FFIs and expiration of TIN relief

FATCA FAQ on Model 1 FFIs and expiration of TIN relief

The IRS on October 15, 2019, added a new “frequently asked question” (FAQ) on the Foreign Account Tax Compliance Act (FATCA) - FAQs General website. The FAQ provides information regarding a Model 1 foreign financial institution (FFI) and the pending expiration of the tax identification number (TIN) relief provided under Notice 2017-46.

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Read FAQ number Q3 under the "Reporting" section of the FATCA FAQs

Background

A reporting Model 1 FFI is required to obtain a U.S. TIN for an account that is, or must be treated as, a U.S. reportable account. Notice 2017-46 [PDF 57 KB] provided transition relief, through the end of 2019, for such FFIs to obtain the requisite TINs from preexisting U.S. reportable accounts. Specifically, the IRS notice stated that the FFI would not be considered in substantial noncompliance with the intergovernmental agreement (IGA) if it reported the U.S. accounts for calendar years 2017, 2018, and 2019 without the TIN.  After the end of the transition relief, the FFI was expected to close the account if it could not obtain the TIN. This has been particularly troublesome for some affected FFIs that have made best efforts to obtain TINs from such account holders, to no avail, but are legally prohibited (by law or contract) to close the accounts.

FAQ guidance

The new FAQ number Q3 under the “Reporting” section of the FAQs provides that a reporting Model 1 FFI is not required to immediately close or withhold on accounts that do not contain a TIN beginning on January 1, 2020. However, an account reported for 2020 with a missing TIN will generate an error notice that will trigger a 120-day period during which the issue can be corrected by the Model 1 FFI. 

KPMG observation

The fact that a Model 1 FFI that cannot obtain a TIN (or close an account) will not automatically be held in noncompliance with the IGA is welcome news. Instead, as provided in the FAQ, the IRS will review the information provided to determine whether the FFI has taken reasonable steps to comply. Specifically, the IRS has indicated that it will review information as to why the TIN could not be obtained, whether the FFI has adequate procedures in place to obtain missing TINs, and the efforts made by the FFI to obtain the missing TINs.

If, after a review of the facts and circumstances, the IRS determines that there is significant non-compliance, the Competent Authority will notify the exchange partner jurisdiction and work with that partner over the following 18 months. During this time, the partner jurisdiction can provide further appropriate consideration of the facts and circumstances to address the non-compliance. Thus, the FFI will have at least 18 months from the date of the notification of noncompliance to correct the TIN error(s) before the IRS takes any other further action, including removing the FFI’s Global Intermediary Identification Number (GIIN) from the IRS FFI List.

As a reminder, a withholding agent is required to impose 30% FATCA withholding on any withholdable payment made to an FFI that no longer has a valid GIIN.

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