August 2, 2018 IRS announces upgrades to FATCA Registration System and issues an updated user guide, and new FAQs regarding entity classifications, certifications of pre-existing accounts, and periodic certifications On July 19, 2018, the Internal Revenue Service announced upgrades to the FATCA Registration System and subsequently issued an updated FATCA Online Registration user guide. On July 24, 2018, the IRS also published FAQs regarding FATCA status, certifications of pre-existing accounts (COPA), and periodic certifications. These FAQs announced an extended due date of December 15, 2018, for the COPA and the periodic certifications, which is required for entities that registered their FATCA status on or before January 1, 2015. On July 31, 2018, the IRS confirmed their completion of upgrades to the system. The thirteen FAQs are located under the "FATCA Certifications" section of the following website. The FATCA Online Registration user guide is on the following website. EY observes: The upgrades to the FATCA Registration System expand the FATCA status options and add COPA and periodic certification capabilities for required entities. The FATCA Registration System will determine certification requirements for each registered entity based on the combination of the entity's FATCA status and the intergovernmental agreement (IGA) status of its jurisdiction of domicile (generally, only Model 2 jurisdictions and non-IGA jurisdictions have a certification requirement). It is critical for entities to review and update their FATCA status in the FATCA Registration System in order to display the correct certification requirements and avoid inapplicable certification-related notices. EY observes: The extension to December 15, 2018, provides Responsible Officers (ROs) additional time to design and implement a periodic review process that supports their certification. ROs should consider whether their periodic review maps to each of the certification requirements so that evidence gathered during the review directly supports each element of the certification. Entity classification Before the upgrade, registering entities had three options for FATCA status: "Participating Financial Institution (FI) not covered by IGA or Reporting FI under Model 2 IGA," "Registered Deemed-Compliant FI," or "None of the Above." The upgrade expands the statuses into 13 options in Part 1, Question 4 of the registration. Entities in approved status may choose the option "Registration — Edit — Start from My Information (Part 1)" on the home page to update the entity status per the new options. Alternatively, entities may update their status when they select the certification link for either the COPA or periodic certification. The new FATCA statuses are: — Direct reporting non-financial foreign entity (NFFE) — Participating foreign financial institution (PFFI), including a reporting financial institution under a Model 2 IGA — Registered deemed-compliant foreign financial institution (FFI) that is a local FFI — Registered deemed-compliant FFI that is a non-reporting member of a PFFI Group — Registered deemed-compliant FFI that is a qualified collective investment vehicle — Registered deemed-compliant FFI that is a qualified credit card issuer or servicer — Registered deemed-compliant FFI that is a restricted fund — Reporting financial institution under a Model 1 IGA — Sponsoring entity of sponsored direct reporting NFFE — Sponsoring entity of sponsored FFIs — Sponsoring entity of sponsored FFIs and sponsored direct reporting NFFEs — Trustee of trustee-documented trust — US financial institution The status of "US financial institution" is available for a "lead FI" that is domiciled in the United States and is the lead of an expanded affiliated group of member financial institutions in Model 2 IGA or non-IGA jurisdictions. It is also for US FIs that have branches in Model 2 IGA or non-IGA jurisdictions. EY observes: Entities that do not have to certify (e.g., US FIs and reporting Model 1 FFIs (RM1FFIs) can avoid a notification by modifying their FATCA classification in the updated system. The FATCA Registration System will use the FATCA status and jurisdiction of domicile to determine who needs to certify. Therefore, it is critical that FATCA statuses are accurate. EY observes: Entities that do not have a certification requirement, for example RM1FFIs, will still be asked by the system if they will submit a certification. Entities should select "No" unless they would like to submit a certification. Who is required to certify? The RO of certain foreign financial institutions (FFIs), such as PFFIs and reporting Model 2 FFIs (RM2FFIs), must make a certification to the IRS regarding the FFIs' compliance with FATCA requirements. The FATCA Online Registration user guide provides a chart that outlines the certification requirements for each FATCA status type as reported below. There are two types of certifications: a one-time "Anti-avoidance Certification" and "Certification of Preexisting Accounts" combined into a single certification, and a recurring "Periodic Certification" that covers a three-year certification period. Entities that do not have a certification requirement should update their FATCA classification to avoid inapplicable certification-related notices in the future. A reporting financial institution under a Model 1 IGA must submit FATCA certifications only if it is doing so on behalf of a branch that operates in a Model 2 or non-IGA jurisdiction. A registered deemed-compliant FFI (RDCFFI) in a Model 2 IGA jurisdiction that has its RDCFFI status based on the Treasury regulations (rather than Annex II of the applicable IGA) must certify to the extent required by the regulations even if certification is not otherwise required for RDCFFIs under the terms of the IGA. Furthermore, if a RDCFFI's status is based on an RDCFFI status in Annex II but such status does not exactly match the FATCA status in the FATCA Registration System (which aligns to status in the Treasury regulations), the entity should select the FATCA status that most closely resembles the RDCFFI status in Annex II for which the entity qualifies. For example, if an entity is classified as a "Registered Financial Institution with a Client Base" under Annex II and certifications are required under the terms of the IGA, the entity should certify selecting category "Registered Deemed-Compliant FFI that is a Local FFI" in the Registration system.
EY observes:A PFFI (or RM2FFI) that terminated its agreement before the July 2018 IRS system update, but after December 31, 2016, is expected to provide a periodic certification in the IRS system by December 15, 2018. Account access will have expired in most of these cases, so entities will have to seek IRS Helpdesk support to regain access to provide the certification. The IRS plans to release specific guidance on this scenario. EY observes: Any entity required to certify that does not do so by the due date will not be in compliance with its FATCA obligations. The consequences of non-compliance may include the revocation of the entity's FATCA status and, ultimately, the entity's global intermediary identification number (GIIN) being removed from the FFI list (FAQ Question 12). Certifications of pre-existing accounts The FATCA Registration System update adds functionality for the RO to complete a one-time certification of compliance with the due diligence requirements for pre-existing accounts (COPA certification). Once the FATCA Registration System determines that a COPA is required based on FATCA status and domicile, the system will create a message on the message board and will send an email to the RO indicating that the certification is due. The RO will have the option to confirm or modify the FATCA status, and, if still applicable, can then proceed to certify by answering certification questions (available on the FATCA Certifications Webpage). Based on the responses to the COPA questions, the system will assign a COPA result to the entity. The available results are "Due Diligence," "Failure to Certify," "Not Required" or "Qualified Certification." Descriptions of each of these results are available on page 57 of the FATCA Online Registration User Guide (Pub 5118 — July 2018). "Due Diligence" means that the RO has not identified any failure by the FI to comply with any of the requirements of pre-existing account due diligence that has not been corrected before the date of the certification. A "Qualified Certification" means that a failure has been identified that has not been corrected as of the date of the certification and will require the entity to respond to a notice of failure from the IRS. In such instance, the entity will need to provide the IRS with a description of and a written plan to correct each material failure. EY observes: The one-time anti-avoidance certification is included in the COPA certification, if applicable. This certification requires a confirmation that since August 6, 2011, there were no formal or informal practices or procedures in place to assist account holders in the avoidance of FATCA. Periodic certifications Similar to the COPA process, the FATCA Registration System will create a message on the message board and send an email to the RO once an entity is required to provide a periodic certification. The system will require answers to specified questions, which are available on the Webpage listed above, under COPA. RDCFFIs, direct reporting NFFEs, and trustee documented trusts are required to make different certifications, as they have not entered into FFI Agreements with the IRS: — The RDCFFI certification is generally a confirmation that the entity meets the requirements specific to their status. — The direct reporting NFFE certification is largely specific to FATCA reporting (e.g., Form 8966); there are also sponsoring entity certifications if the entity is a sponsored NFFE. — The trustee documented trust certification revolves around FATCA reporting, and having a compliance program in place (that has been reviewed). Based on the responses to the certification questions, the system will assign a periodic certification result to the entity. The available results are "Not Required," "Compliance," "Qualified Certification" or "Failure to Certify." Descriptions of each of these results are available on page 62 of the FATCA Online Registration User Guide (Pub 5118 — July 2018). "Compliance" means that a certification is complete. A "Qualified Certification" will require the entity to respond to a notice of failure from the IRS and provide the IRS with a description of and a written plan to correct each material failure. EY observes: While the system allows multiple COPAs and periodic certifications to be submitted with additional or updated information, previously submitted COPAs and periodic certifications cannot be edited or deleted. Entities should carefully analyze the questions and responses before submitting certifications to avoid complications or delays in entity results. Failure to timely certify can cause the system to assume an event of default, potentially revoke FATCA status and remove an entity's GIIN from the FFI list. Consolidated certifications Lead FIs acting as the compliance FI for a consolidated compliance group and sponsoring entities are able to make one certification for each member or sponsored entity. An RO certifying on behalf of different types of entities must submit a separate collective certification for each type of entity (or group thereof). For example, an RO certifying on behalf of PFFIs and RDCFFIs must submit two separate certifications, one for PFFIs and another for RDFFIs. The system will also allow accelerated certifications (e.g., certifications due in 2018 for an entity that has an effective FFI Agreement effective after 2014) only in the case of a lead FI certifying on behalf of members, or a sponsoring entity certifying on behalf of its sponsored entities. The system will list all members or all sponsored entities under the lead FI or sponsoring entity that have effective FATCA Agreements prior to December 31, 2017, and will give the lead or sponsoring entity the ability to align the certification periods. The system will not include member or sponsoring entities with FATCA requirements effective after December 31, 2017. ———————————————
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
