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BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 1
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BDO KNOWLEDGE Tax Webinar Series Update on Foreign Account Tax Compliance Act (FATCA) Martin Karges, Senior Director – International Tax Services, BDO USA, LLP
Sean Dokko, Senior Manager – International Tax Services, BDO USA, LLP
Matt Legg, Senior Manager – International Tax Services, BDO USA, LLP
Michelle Murphy, Senior Manager – International Tax Services, BDO USA, LLP
March 27, 2014
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 3
CPE and Support CPE Participation Requirements ‒ To receive CPE credit for this webcast:
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All others will be emailed instructions on how to access your certificate.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 4
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BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 5
With You Today
Martin Karges, LL.M. Senior Director – International Tax Services BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: 212-885-8156 [email protected]
Sean Dokko, J.D., LL.M. Senior Manager – International Tax Services BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: 212-885-7269 [email protected]
Matt Legg, CPA Senior Manager – International Tax Services BDO USA, LLP 8405 Greensboro Drive Suite 700 McLean, VA 22102 Direct: 703-770-1058 [email protected]
Michelle Murphy, J.D., LL.M. Senior Manager – International Tax Services BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: 212-885-7232 [email protected]
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 6
Why FATCA?
The U.S. government wants to identify US taxpayers’ hidden foreign accounts/assets
Use foreign financial institutions (FFIs) to provide the access to information
Penalize non-participating FFIs with a 30% withholding tax on withholdable payments
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Key Objectives/Features
Seeks to improve tax compliance of specified US persons with offshore financial accounts
Requires FFIs to enter into compliance agreements with US Treasury and to identify and report on US accounts annually
Requires non-financial foreign entities (NFFEs) to (a) report substantial US owners or (b) to certify that they have no US ownership, have an active business or are publicly traded
Requires withholding agents to withhold 30% of payments made to FFIs that are not in compliance with FATCA
Requires FFIs to withhold on withholdable payments to recalcitrant accounts
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 8
What is a Foreign Financial Institution (FFI)?
Foreign Financial Institution (FFI)
Any financial institution that is a foreign entity.
A financial institution is any entity that
a) accepts deposits in the ordinary course of a banking or similar business;
b) holds, as a substantial portion of its business, financial assets for the account of others;
c) is engaged primarily in the investing, reinvesting or trading of securities, partnership interests, commodities, notional principal contracts, insurance or annuity contracts, or any interest in such security, partnership interest, commodity, notional principal contract, insurance contract or annuity contract; or
d) is an insurance company which issues contracts with an investment component.
Generally non-U.S. entities such as banks, broker/dealers, insurance companies, fund management/advisor companies, hedge funds, securitization vehicles and private equity funds will be considered FFIs.
Investment management companies are considered “investment entities” and therefore “FFIs”
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 9
What is expected of FFIs?
Sign FFI Agreement
Documentation of investors/account holders
Reporting of US accounts
Withholding when necessary
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Immediate Action Points
Review organization chart to determine characterization of each entity as:
FFI
USFI
NFFE
Appoint Responsible Officer
Register FFIs
Decide whether or not to refresh existing Forms W-8BEN
Determine outsourcing strategy for FATCA implementation
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Typical Master-Feeder-Structure
US Investors
US Feeder Fund
Foreign Master Fund
Foreign Investors
Offshore Corporation
Income from foreign and US investments
Management
US Tax Exempt Entity
Foreign Investors
Portfolio Management Company (Foreign)
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 12
Typical Master-Feeder-Structure (continued)
US Investors
US Feeder Fund
Foreign Master Fund
Foreign Investors
Offshore Corporation
Portfolio Management Company (Foreign)
PAYORS OF WITHHOLDABLE
PAYMENTS
W-9 USFI
W-9
FFI
W-8BEN-E
FFI
FFI
W-8BEN (Individuals) W-8IMY or W-8BEN-E
(Entities)
W-8BEN-E
Foreign Investors
US Tax Exempt Entity
W-8IMY or W-8BEN-E
W-9 W-8BEN (Individuals) W-8IMY or W-8BEN-E
(Entities)
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FATCA beyond the Financial Services Industry
The definition of FFI is broad enough to capture entities affiliated with active businesses.
Holding Companies and Treasury Centers are FFIs:
• If its expanded affiliated group (EAG) includes a depository infrastructure, custodial institutions, insurance company, or an investment entity, or
• If it was formed in connection with investment vehicles such as PE, VC, or hedge funds
Exception if the Holding or Treasury company is a member of a “nonfinancial group” and its functions are limited to holding and financing (hedging for EAG members)
To qualify as a nonfinancial group:
No more than 25% of the EAG’s gross income or assets are passive
• No more than 5% of the EAG’s gross income is derived by FFIs, and
• Any member that is an FFI must be participating or deemed compliant
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Basic Corporate Structure
US Corp
Foreign Holdco
US Holdco
US OpCo3
US OpCo2
US OpCo1
Foreign OpCos
Foreign OpCos
Foreign Financial Co
Foreign IP-Co
Foreign Vendors
Foreign SH US SH
FFIs active/passive NFFES?
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 15
PE Owned EAG
Foreign HoldCo 1
Foreign HoldCo 2
Foreign HoldCo 3 US HoldCo
Foreign OpCos
Foreign OpCos
US OpCos
Foreign Private Equity Fund
FFIS?
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 16
Information Required
To analyze a “brick and mortar” client’s exposure to FATCA and to identify the existence of any FFIs, we should request the following:
Organization chart
Brief description of each foreign entity’s purpose and business activity
Consolidated financial statements for 3 years
Stand-alone financial statement for entities suspected of FFI status
Forms 5471, 8865, 8858
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 17
Registering as FFI
IRS Registration Portal open
With registration the FFI becomes a “participating” FFI – subject to the FFI Agreement
FFI obtains Global Intermediary Identification Number (GIIN)
Alternative Registration by filing Form 8957 (Draft)
Effective Date = 7/1/2014
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IRS Registration Portal – Practical Steps
Preliminarily enter registration info anytime after FFI Portal opens because:
Any information entered into the system, even if submitted as final, will not be regarded as a final submission
Information will merely be stored until the information is submitted as final on or after January 1, 2014
First GIINs will be issued by June 2014
Do not finalize registration immediately after January 1, 2014 because:
System may need some time to adjust
Some IGAs not yet completed – may need to wait until they are finalized
Cayman Island IGA is finalized
Finalize registration after January 1, 2014 and prior to April 25, 2014 in order to obtain a GIIN by June 2, 2014
Do not file paper form 8957
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 19
IRS Registration Portal
15 questions as per electronic form 8957
Identification and Classification of FFI
Role within Expanded Affiliate Group
Status as QI, WP, WT
Branches outside country of tax residence
Responsible Officer
Expanded Affiliate Group Information
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 20
FFI Responsibilities
Under the FFI Agreement, the FFI must:
Undertake certain identification and due diligence procedures with respect to its account holders;
Report annually to the IRS on its account holders who are U.S. persons or foreign entities with substantial U.S. ownership; and
Withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income (withholdable payments), made to
Non-participating FFIs,
Individual account holders failing to provide sufficient information to determine whether or not they are a U.S. person, or
NFFE account holders which are required to but fail to provide sufficient information about the identity of substantial U.S. owners.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 21
Investor Documentation
Types of accounts subject to FATCA
Pre-existing individual accounts
New individual accounts
Pre-existing entity accounts
New entity accounts
Due diligence requirements vary per account type
Challenge is to identify U.S. accounts
Exempt account holders
Apply U.S. indicia search
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Documentation of Investors/Account Holders: U.S. Indicia What is considered indicia of U.S. status?
Six key indicia of U.S. status:
U.S. citizenship or lawful permanent resident (green card) status;
A U.S. birthplace;
A U.S. residence address or a U.S. correspondence address (including a U.S. P.O. box);
Standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a U.S. address;
An “in care of” address or a “hold mail” address that is the sole address with respect to the client; or
A power of attorney or signatory authority granted to a person with a U.S. address.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 23
Withholding Certificates
W-9
W-8BEN
W-8BEN-E
W-8IMY
W-8EXP
W-8ECI
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 24
Draft Forms W-8BEN-E and W-8IMY
The new Forms W-8BEN-E and W-8IMY (Drafts) reflect the multitude of entity types under FATCA.
FFI versus Nonfinancial Foreign Entity (NFFE)
Participating Versus Nonparticipating FFI
Active versus passive NFFE
Other categories
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 25
Form W-8BEN-E: Beneficial Owner’s Foreign Status for U.S. Tax Withholding (Entities) Purpose of Form:
To establish non-U.S. status
Claim beneficial owner status,
Claim exemption from, or reduction in, U.S. withholding tax, or
Claim an exemption from domestic information reporting and backup withholding
Who must file?
A foreign entity who is a beneficial owner of income subject to withholding
Form W-8BEN-E is given to the withholding agent or person requesting it, not the IRS
Penalties for Not Providing Form:
Denial of treaty benefits
Noncompliant for FATCA purposes and subject to withholding
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 26
Form W-8BEN: Beneficial Owner’s Foreign Status for U.S. Tax Withholding (Individuals) Purpose of Form:
To establish non-U.S. status
Claim beneficial owner status,
Claim exemption from, or reduction in, U.S. withholding tax, or
Claim an exemption from domestic information reporting and backup withholding
Who must file?
A foreign individual who is a beneficial owner of income subject to withholding
Form W-8BEN is given to the withholding agent or person requesting it, not the IRS
Penalties for Not Providing Form:
Denial of treaty benefits
Noncompliant for FATCA purposes and subject to withholding
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 27
Form W-8IMY: Certificate of Foreign Intermediary, Foreign-Flow Through Entity, or Certain U.S. Branches for United States Tax Withholding
Purpose of Form:
To establish non-U.S. status
Who must file?
A foreign person who is an intermediary holder of income subject to withholding
Qualified Intermediaries – Foreign bank entered into “QI” agreement with IRS; QI collects documentation and may assume withholding responsibility
Withholding Foreign Partnerships – WP Agreement
Nonqualified Intermediaries and non-withholding foreign partnerships must submit documentation for each beneficial owner to withholding agent
Form W-8IMY is given to the withholding agent or person requesting it, not the IRS
Penalties for Not Providing Form:
Denial of treaty benefits
Noncompliant for FATCA purposes and subject to withholding
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 28
Entity Categories Under FATCA
Participating FFI (PFFI) Non-Participating FFI (NPFFI) Reporting Model 1 FFI (Model 1 FFI) Participating FFI in a Model 2 IGA Jurisdiction
(Model 2 PFFI) Registered Deemed Compliant FFI (RDCFFI) Sponsored FFI that has not obtained a GIIN Certified Deemed Compliant non-registering
local bank Certified Deemed Compliant FFI with only low-
value accounts Certified Deemed Compliant sponsored, closely
held investment vehicle Certified Deemed Compliant limited life debt
investment company (only for payments made prior to 1/1/17)
Owner Documented FFI (ODFFI) Restricted Distributor Nonreporting IGA FFI Foreign Government, Government of U.S.
possession or foreign central bank of issue
International Organization Exempt Retirement Funds Entity wholly owned by exempt beneficial
owners Territory Financial Institution Excepted nonfinancial group entity Excepted nonfinancial start-up company Excepted nonfinancial entity in liquidation or
bankruptcy 501(c)(3) organization Nonprofit organization Publicly Traded NFFE or Affiliate of publicly
traded NFFE Excepted territory NFFE Active NFFE Passive NFFE Not receiving withholdable/pass-through
payment
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 29
BDO’s Web-based FATCA Account Documentation Tool Facilitates the appropriate classification of each account holder/investor
Provides a paper trail for due diligence
Updated as the FATCA rules evolve
Provides support, but cannot replace the Responsible Officer’s due diligence obligations
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 30
Withholdable Payments
Withholdable payments include U.S. source
Interest
Dividends
Royalties
Rents
Other fixed determinable and periodic (“FDAP”) income AND
Gross proceeds from the disposition of property that can produce interest or dividends.
• The latter category is not subject to the Form 1042 reporting/withholding.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 31
Withholding
FATCA imposes a 30 percent withholding tax on certain U.S. source payments to FFIs and NFFEs that fail to comply with their information reporting obligations. To avoid having tax withheld on such payments under FATCA, an FFI will have to become a participating FFI by entering into an agreement with the IRS prior to June 30, 2014 that the FFI will:
Identify U.S. accounts or interest holders;
Report certain information to the IRS regarding such U.S. accounts or interest holders;
Verify its compliance with its obligations under the agreement; and
Ensure that a 30 percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 32
Withholding (continued)
Withholding is scheduled to be required for payments of FDAP income after June 30, 2014 and for payments of gross proceeds made after December 31, 2016.
No withholding will be required for payments made with respect to certain obligations outstanding on June 30, 2014. Such obligations generally include any legal agreement that produces or could produce a payment withholdable under FATCA, other than an instrument that is treated as equity or that lacks a stated expiration or term. Obligations specifically mentioned in the proposed regulations as qualifying for the “grandfathering” include debt instruments, borrowings under a credit agreement in place on June 30, 2014, and notional principal contracts. A significant modification of the obligation will cause the obligation to be deemed newly issued on the date of such modification.
The final regulations modify the grandfathered provisions
Foreign pass-through payments
Dividend equivalent payments under 871(m)
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 33
Withholding (continued)
FATCA provides that every person required to withhold and deduct any tax under FATCA is made liable for such tax and is indemnified against the claims and demands of any person for the amount of any payments made in accordance with FATCA.
The beneficial owner of a payment is entitled to a refund for any overpayment of tax actually due under other provisions of the Code.
However, with respect to any tax properly deducted and withheld under FATCA from a payment beneficially owned by an FFI, the FFI is not entitled to a credit or refund, except to the extent required by a treaty obligation of the United States.
No credit or refund shall be allowed or paid with respect to any tax properly deducted and withheld unless the beneficial owner of the payment provides the IRS with information to determine whether such beneficial owner is a U.S.-owned foreign entity and the identity of any substantial U.S. owners of such entity.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 34
Exceptions to Withholding
The following are exempt from the definition of Withholdable Payments:
Interest on outstanding accounts payable arising from the acquisition of goods or services
Services (including wages and other forms of employee compensation (such as stock options))
The use of property
Office and equipment leases
Software licenses
Transportation
Freight
Gambling winnings, awards, prizes and scholarships
“Grandfathered obligations”
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 35
Coordination with Other Withholding Sections
FATCA coordinates with §1441/1442 nonresident withholding, §1445 FIRPTA withholding, §1446 Partnership withholding and §3406 backup withholding.
When there are several withholding agents, only one tax is required to be withheld and deposited (though all withholding agents are liable for the withholding tax).
Withholding agent can generally credit FATCA withholding tax to §1441/1442 nonresident withholding taxes.
An amount subject to §1445 FIRPTA withholding is generally not subject to FATCA withholding.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 36
Coordination with Other Withholding Sections (continued) A withholdable payment or pass-through payment subject to §1446 withholding
is generally not subject to FATCA withholding.
A participating FFI that makes a withholdable payment to a recalcitrant U.S. account holder is not required to backup withhold if it withholds under FATCA.
Participating FFI can also elect to backup withhold under §3406 instead of withholding under FATCA.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 37
Reporting – Revised Form 1042-S
Capture Chapter 3 and Chapter 4 Withholding
Must include a Chapter 4 exception code to avoid 30% withholding tax, e.g.:
Grandfathered payment
Payee not subject to Chapter 4 withholding
Foreign entity that assumes primary withholding responsibility
Except under IGA
Chapter 3 exemption code 12 (“Payee subject to Chapter 4 withholding”) confirms that NRA withholding is not required if FATCA withholding applies
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 38
Reporting – Revised Form 1042-S (continued)
New Chapter 4 Status Codes reflect the multitude of FATCA entities classifications
Payor Status Code
Recipient Status Code
FFIs may report withholdable payments to recalcitrant account holders and nonparticipating FFIs on a pooled basis
New fields for:
Global Intermediary Identification Numbers (GIIN)
Recipient date of birth
Due date: March 15
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 39
Reporting – Form 8966 (FATCA Report)
Reporting of US accounts and NPFFI’s
Identification of Filer (FFI)
Account Holder Information
Name
Address
TIN
Entity Type (e.g. NPFFI, passive NFFE with substantial U.S. owners)
Financial Information
Account Number
Balance
Interest, Dividends, Gross Proceeds, Other
Pooled reporting for account holders that are recalcitrant or NPFFI’s
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 40
Certification by Responsible Officer
FATCA requires a participating FFI to comply with certain verification procedures to identify U.S. accounts. The regulations provide that the Responsible Officer will be expected to certify that the FFI has complied with the terms of the FFI Agreement. Verification of such compliance through third-party audits is not mandated. If an FFI complies with the obligations set forth in its FFI Agreement, it will not be held strictly liable for inadvertent failure to identify a U.S. account.
Responsible Officer could be the FFI’s Chief Financial Officer or Chief Compliance Officer
Responsible Officer should be familiar with general FATCA concepts, but may delegate compliance details
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 41
Responsible Officer
The Responsible Officer must oversee and periodically review the FFI’s compliance program
The Responsible Officer must certify that there are no material failures or (if material failures exist) that appropriate action has been taken to remediate such failures
Due Diligence Certification
Anti-Avoidance Certification
Model I IGA does not require Responsible Officer certification
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 42
Intergovernmental Agreements
The U.S. Treasury Department has published model intergovernmental agreements to implement FATCA
The model agreement follows through on the commitment to collaborate on developing an intergovernmental approach to implementing FATCA
Currently, 22 IGAs have been concluded and substantially more are in negotiation
There are two versions of the model agreement – IGA 1 (which includes a reciprocal version and a nonreciprocal version) and IGA 2.
Both versions establish a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements
Both versions of the model agreement also address the legal issues that had been raised in connection with FATCA, and simplify its implementation for financial institutions.
FFIs in IGA 1 jurisdictions do not enter into an FFI agreement with the IRS. They report only to their national governments
FFIs in IGA 2 jurisdictions must report to the IRS, however, they should be able to report non-consenting U.S. accounts to the IRS on an aggregate basis
All FFIs in IGA jurisdictions (regardless of Model 1 or 2) must register with the IRS and obtain a GIIN
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 43
Intergovernmental Agreements (continued)
The reciprocal version of Model 1 also provides for the United States to exchange information currently collected on accounts held in U.S. financial institutions by residents of partner countries, and includes a policy commitment to pursue regulations and support legislation that would provide for equivalent levels of exchange by the United States.
This version of the model agreement will be available only to jurisdictions with whom the United States has in effect an income tax treaty or tax information exchange agreement and with respect to whom the Treasury Department and the IRS have determined that the recipient government has in place robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 44
Key Dates 2014 January 1, 2014 – FFIs may begin to finalize registrations on IRS Portal
April 25, 2014 – Deadline to register with IRS to be included in initial FFI list
June 2, 2014 – IRS to publish FFI list and Global Intermediary Identification Number (GIIN)
June 30, 2014 – FFI agreements effective
July 1, 2014 – New account due diligence and identification procedures begin
July 1, 2014 – General withholding on U.S. source income begins
December 31, 2014 – Complete due diligence for existing prima facie FFI accounts
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 45
Key Dates 2015 March 15, 2015 – Forms 1042 and 1042-S due annually for the first time for
FATCA reportable amounts
March 31, 2015 – Form 8966 due for reporting of account holder information and account balance for calendar year 2014 (due annually thereafter)
June 30, 2015 – Complete due diligence for existing high-value individual account holders
December 31, 2015 – Deadline to qualify for limited FFI and limited branch status
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 46
Key Dates 2016-2018 January 1, 2016 – End of transition period for affiliated group rules
March 15, 2016 – Forms 1042 and 1042-S due for aggregate reporting on 2015 NPFFI payments (in addition to other recipient reporting)
March 31, 2016 – Forms 8966 due (must now also include income information)
June 30, 2016 – Complete due diligence for all existing accounts
January 1, 2017 – FATCA withholding begins on certain gross proceeds to noncompliant accounts and foreign pass thru payments
March 31, 2017 – U.S. account gross proceeds reporting (Form 8966) begins
March 15, 2018 – Forms 1042 and 1042-S due (must now also include gross proceeds paid to recipients)
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 47
Steps to Take for FFI FATCA Compliance
Specifically, in order for foreign funds to begin the process of becoming compliant with the FATCA due diligence requirements, they should implement the following steps first:
1. Establish account opening procedures ensuring that new individual account holders provide Form W-8, W-9 or documentary evidence (e.g., passport) upon opening of an account. Account opening documents must be reviewed for US indicia. New entity account holders must be asked to submit the appropriate new Forms W-8BEN-E, W-8IMY or W-9 with supporting documentation.
2. Review existing documentation for respective shareholders / partners / account holders and determine if the account is exempt from FATCA reporting.
Exemption threshold for existing individual account holders: $50,000
Exemption threshold for existing entity account holders: $250,000
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 48
Steps to Take for FFI FATCA Compliance (continued)
3. Conduct electronic search for US indicia for existing individual or entity account holders that are not already exempt or identified as US accounts. A paper search is required if the following documentary evidence is not on file or if the following data is not kept in an electronically searchable system:
Nationality or residence status,
Current residence and mailing address,
Current telephone number,
Whether there are standing instructions to transfer,
Current c/o or hold mail if no other address on file, and
Whether there are any powers of attorney or signatories on file.
BDO KNOWLEDGE Tax Webinar Series ‒ Update on Foreign Account Tax Compliance Act (FATCA) Page 49
Steps to Take for FFI FATCA Compliance (continued)
4. Conduct enhanced review (paper search and account manager inquiry) if pre-existing individual account is in excess of $1 million or entity account is in excess of $250,000. No paper search is necessary if W-8BEN and documentary evidence is on file or if the above data is kept in an electronically searchable system.
5. Obtain W-9 and waiver (if needed) if US indicia are discovered. 6. Review the collected Forms W-8 and W-9 (including waivers and supporting
information where applicable). 7. The above due diligence procedures for pre-existing individual accounts must
be completed within 2 years of the effective date of the FFI agreement. The timeline is 1 year for accounts above $1 million.
8. For pre-existing entity accounts with a balance above $250,000: obtain within 2 years of the effective date of the FFI agreement the new Forms W-8BEN-E or W-8IMY with supporting documentation (or W-9 if US entity). The timeline is 1 year if account holder is a “prima facie FFI” (due to the presence of FFI indicia).
9. Document account holder classification for FATCA purposes
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In Summary
Finalize FFI Registration by April 25, 2014
Implement immediately due diligence procedures for new investors
Collect new forms W-8 and W-9 for existing investors
Implement a system to:
Document investors under FATCA
Report US investors
Withhold when necessary
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Questions
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Conclusion Thank you for your participation!
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Speaker Biographies
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Biography Martin H. Karges, LL.M.
Martin H. Karges, LL.M. Senior Director - International Tax Services BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: 212-885-8156 [email protected]
With 15 years experience in international taxation, Martin has worked on a wide variety of cross-border corporate and individual tax matters, consulting as well as compliance. His primary focus has been on U.S. inbound investment and U.S. withholding tax issues, including QI and FATCA rules. Martin joined BDO’s New York office in 2000 and later completed a 2 year secondmend with the Frankfurt/Germany office of BDO DWT AG. His areas of expertise include FIRPTA, CFC / Subpart F rules, PFICs, holding company structures, and tax treaties. He was a member of BDO International’s Tax Planning Ideas Center of Excellence (“Think Tank”) where he helped develop sophisticated cross-border tax solutions for companies and individuals. Martin has assumed the position of Director of BDO USA’s Qualified Intermediary (QI) Services and conducted QI audits in Luxembourg, Denmark and Germany. In this role he developed a deep understanding of the U.S. tax rules applicable to foreign banks and investment funds and their customers. Martin is now leading BDO USA’s FATCA Service Team. He has become the primary contact person for BDO’s New York City financial services group on all international tax matters.
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Biography Sean Dokko, J.D., LL.M.
Sean Dokko, J.D., LL.M. Senior Manager - International Tax Services BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: 212-885-7269 [email protected]
Sean is a Senior Manager in BDO USA, LLP’s International Tax Services Group where he focuses on international tax planning, consulting and compliance for both inbound and outbound clients. He has experience in developing and implementing tax planning strategies and assisting clients in reporting the results of such strategies in U.S. tax filings. He also has experience in foreign tax credit planning, implementing strategies to minimize subpart F income, cross border restructurings and analyzing Income Tax Treaties. Sean has also been actively involved with teaching Continuing Professional Education courses throughout his career.
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Biography Matt Legg, CPA
Matt Legg, CPA Senior Manager - International Tax Services BDO USA, LLP 8405 Greensboro Drive Suite 700 McLean, VA 22102 Direct: 703-770-1058 [email protected]
As a member of the Firm’s International Tax Practice, Matt assists the Firm’s clients in understanding the foreign and domestic tax considerations associated with their global business operations. Matt provides specialized services addressing a wide array of international tax concerns, including: cross-border structuring, foreign expansion assistance; transfer pricing; tax treaty analysis; foreign holding companies; acquisitions and divestitures planning; cash repatriation; foreign tax credit planning; U.S. anti-deferral rules, and international tax compliance projects. Matt also has significant experience addressing tax accounting issues for multinational clients, including preparation and review of complex FAS 109 and FIN 48 income tax provision calculations and disclosures. He also has experience evaluating, testing, and documenting internal controls around the income tax process as required by Sarbanes-Oxley Section 404. Matt has over 16 years of public accounting experience; including over 10 years of “Big Four” firm experience, and has significant experience in serving the international and domestic tax needs of large corporations, including SEC registrants with global operations.
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Biography Michelle Murphy, J.D., LL.M.
Michelle Murphy, J.D., LL.M. Senior Manager - International Tax Services BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: 212-885-7232 [email protected]
Michelle has worked with BDO for over 13 years with a concentration in international tax matters, both for foreign enterprises and individuals investing and doing business in the U.S. Michelle has experience with inbound/outbound transactions, reorganizations, financing, M&A work and the impact of tax treaties on U.S. and foreign individuals and companies. She also assists with U.S. companies’ and investors’ overseas activities, advising on the U.S. tax consequences related to such activities and how to coordinate structures to create worldwide tax efficiency. In addition, Michelle has knowledge of the filing requirements associated with international operations, with a focus on foreign bank account reporting rules (“FBAR”), withholding tax issues, FATCA and works closely with clients to ensure proper compliance is met.
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