Importantly, grandfathering has also been extended such that certain obligations (including debt instruments, derivatives transactions, and associated collateral) outstanding on 1 July 2014 will be grandfathered under FATCA. Grandfathering does not apply to obligations that are treated as equity for US tax purposes, obligations that lack a stated expiration or term, or to certain agreements or instruments (including custodial agreements, brokerage agreements, investment-linked annuity contracts or insurance contracts and master agreements). Grandfathering protection will be lost if the obligation is materially modified.
This 6 month delay is particularly welcome for Australian financial institutions, given the uncertainty about when an intergovernmental agreement (IGA) between the Australian and US governments will be signed, and, equally importantly, when Australian implementing legislation will be enacted and effective.
The delay means that Australian financial institutions will have additional time to prepare for FATCA and to be involved in any consultation process established in relation to the Australian implementing legislation.
The US government has made a number of corresponding changes to FATCA time frames to reflect the postponing of FATCA withholding, including:
The IRS anticipates that the FATCA registration website will be available on 19 August 2013. Foreign financial institutions (FFIs) may register through the website commencing on 1 January 2014. If there is an Australian IGA, Australian FFIs must register as a deemed-compliant FFI and obtain a GIIN by 1 January 2015.
The US government has confirmed that it will treat a jurisdiction as having an IGA if such jurisdiction is listed on the IGA list on the US Treasury website. This will generally include jurisdictions that have signed IGAs but have not brought such IGAs into force through their own domestic legislative process. Consequently, financial institutions located in IGA jurisdictions may register and obtain a GIIN prior to relevant domestic implementing legislation coming into effect.
FFIs will no longer be required to report on their US accounts with respect to the 2013 calendar year. Rather, the first relevant period for reporting purposes will be the 2014 calendar year and US accounts identified in respect of such year must be reported on or exchanged with the US by the relevant IGA country by the relevant 2015 reporting date.
Consequently, “pre-existing accounts” under an IGA will be financial accounts maintained as at 30 June 2014 and FFIs will generally be required to implement new account opening procedures by 1 July 2014.
Although the delay in FATCA withholding is welcome news, Australian financial institutions should not be complacent and should continue their FATCA preparation.
The key developments for Australian financial institutions will be whether and when Australia has signed an IGA with the US, the release of Australian implementing legislation and any associated consultation process.
This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.