The US IRS has announced that the FATCA regulations will be amended to extend transition rules for gross proceeds, foreign passthru payments, limited branches and limited foreign financial institutions (FFIs), and sponsored entities; to modify the grandfathered obligation rule for collateral; and to provide further guidance on the 2014 exchange of information under a Model 1 IGA.
Notice 2015-66, released September 19, provides that chapter 4 regulations under section 1473 will be amended to provide that withholding on gross proceeds payments will apply to sales or other dispositions occurring after December 31, 2018.
Regulations under section 1471 will be amended to extend the start date of withholding on foreign passthru payments to the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.”
Regulations under section 1471 will be amended to provide that the availability of limited branch and limited FFI statuses will terminate on January 1, 2017. The change will give FFIs and other stakeholders more time to decide whether to continue to operate in jurisdictions where limited branches or limited FFIs exist, the Service said.
The deadline for a sponsoring entity to register its sponsored entities and redocument such entities with withholding agents is extended to January 1, 2017. The Service confirmed that it is developing a streamlined process for such registration.
To reduce compliance burdens on withholding agents that hold collateral as a secured party, the notice announces that the regulations under chapter 4 will be amended to modify the rules for grandfathered obligations in relation to collateral. Modifications will be made to the pro rata rule for pooled collateral and to rules on substitute payments made with respect to a grandfathered obligation.
The notice provides additional time for withholding agents and FFIs to modify their systems in stages as necessary to address the phase-out of the transitional rules, the Service said.
The notice also provides guidance on 2014 exchange of information in Model 1 IGA jurisdictions where the obligation to exchange has not yet taken effect or where the obligation to exchange is in effect but systems are not yet in place for automatic exchange. In both cases, FFIs are not subject to FATCA withholding if certain criteria are satisfied.
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