Tax compliance FATCA registration

In order to register as a foreign financial institution (FFI) under FATCA in time to make the first FFI list, financial services firms are under considerable pressure to sift through and make sense of outstanding questions and anomalies related to the complicated legislation. FFIs need to register by 25 April, 2014 to make the list which will be published in June 2014 and circulated to withholding agents.  


At a seminar held at the Westin Grand Cayman Resort at the end of June, produced jointly by the Ministry for Financial Services and Cayman Finance, each presenter, representing the legal, accounting/administrative and government perspectives, highlighted the many challenges both industry and government are facing with regards to the FATCA (Foreign Account Tax Compliance Act) implementation process. 

To begin with, the IRS has said it wants entities to register via its dedicated online portal, currently scheduled to open on 19 August, 2013. But as at the time of writing, the portal had not been launched and prospective registrants only have a draft paper registration form (called an 8957) with 15 questions to guide them, which may or may not contain all the info required to register. 


Information required to register  

Paul Elridge, from PwC in Bermuda spoke at the seminar on the FATCA registration process, and he said that in order to prepare for registration, businesses may need to initially classify their legal entities, identify their expanded affiliate groups, identify a Responsible Officer (RO), and gather registration data to input into the IRS FATCA registration portal. It was suggested entities would need to have between 40 and 60 data items at their fingertips in order to meet registration requirements. These data requirements would increase if the FFI had branches in multiple countries or was part of an expanded affiliate group. 

Elridge said examples of data that could be required included basic information, such as the FFI name and type and the name of the country of tax residence, and further information including the name of the Responsible Officer and the point of contact name, as well as expanded affiliate information. 


Difficulties for IGA countries  

As far as the Cayman Islands is concerned, one of the biggest issues is the fact the Cayman Islands Government committed to signing a Model I inter-governmental agreement (IGA) with the US in March but that agreement has yet to materialise in its final form. According to Michelle Bahadur, director with the Government’s Financial Services Secretariat, who also spoke at the seminar, the delay was with the IRS itself, having roughly 70 similar agreements to negotiate concurrently with other jurisdictions. She confirmed there were a number of outstanding issues, mainly in the area of clarity of terms, about which the Cayman Islands Government was looking forward to discussing with the IRS in due course.  

The fact Cayman’s final IGA has not yet been agreed is a key issue because registration with the IRS is guided to a certain degree by whether the entity is within an IGA jurisdiction or not. One such specific issue in this regard is whether the registering entity needs to appoint and register an RO. According to the Regulations issued by the IRS governing FATCA, the registration process requires a nominated person to be responsible for compliance (and there are severe penalties for non-compliance), yet entities in an IGA country do not have to appoint an RO.  

Other issues include how to proceed with registering a branch of an IGA country and the need for guidance by the IRS in the form of a revenue procedure. Elridge confirmed Cayman FFIs would want to wait and see what the revenue procedure stated about changing FFI status once registered and obtaining a new GIIN (global intermediary identification number – allocated by the IRS to the FFI once the FFI has completed its registration process). 

Elridge confirmed knowing what to do with an FFI depended on the country in which the FFI was located and whether that country was likely to have an IGA. He said businesses were taking one of three strategies in these circumstances. These included registering all FFIs, doing a technical study and following the news on IGAs and a hybrid approach whereby countries were only focussing on borderline IGAs. In any case, a Model 1 IGA did not have certification procedures, only reporting FFIs. 


Requirements of the regulations  

FATCA Regulations (for those entities within jurisdictions that have not, or have not as yet signed an IGA) require an FFI to appoint a Responsible Officer and establish policies, procedures and processes sufficient to satisfy an FFI agreement. In addition, it must periodically review and certify compliance and effective internal controls, do due diligence on pre-existing accounts and certify that the entity has not assisted account holders in avoidance of Chapter 4. The RO also had to certify the FFI had established a compliance programme that was in effect and certify they had reviewed the compliance programme against the requirements of the FFI agreement.  


Moving forward with FATCA  

According to Bahadur, the Cayman Islands Government had identified upcoming opportunities for discussing these and other issues with the IRS in the coming months. She said the government was looking forward to such dialogue to iron out outstanding issues. Then it could proceed with finalising and ultimately signing Cayman’s IGA, thereby removing the current uncertainty and creating a clear path forward for industry.