Against widespread speculation that the IRS might provide an additional delay to the Foreign Account Tax Compliance Act's (FATCA) withholding provisions by extending FATCA deadlines, FATCA withholding is confirmed to go into effect on July 1. Broadly, FATCA requires foreign entities to identify, document and report their U.S. account holders to the IRS or else face a 30 percent withholding tax applicable to certain U.S.-source payments made to the foreign entity. Under FATCA, each foreign entity is classified as either a Foreign Financial Institution (FFI) or a Nonfinancial Foreign Entity (NFFE). The classification determines the foreign entity's reporting, due diligence and withholding obligations with respect to its U.S. account holders.
Any FFI that is not exempt or deemed compliant must register with the IRS via an online portal by April 25 and obtain a global intermediary identification number (GIIN) to avoid withholding on post-June 30 payments of certain U.S.-source income.
All foreign trusts, foreign trustees and underlying foreign holding companies must act now to determine their FATCA classification. It is not at all uncommon for the foreign trustee, foreign trust and underlying foreign holding company each to be created in a different jurisdiction, and the presence or absence of an intergovernmental agreement (IGA) with that jurisdiction can further complicate matters. There are currently two types of IGAs, Model 1 and Model 2, and both modify the obligations of FFIs in the jurisdictions that have them.
Either registration as an FFI or self-certification as an NFFE may be required for (i) the trust; (ii) the trustee; and (iii) any underlying holding company. However, a foreign entity will be exempt from registration if it is a certified deemed-compliant FFI, such as a sponsored investment entity, a sponsored closely held investment vehicle or an owner-documented FFI, in each case by agreeing to have another entity do the FATCA reporting on its behalf.
These rules are complicated and replete with conditions and exceptions. Day Pitney is actively advising trustees regarding their ongoing compliance requirements and those for their foreign trusts and underlying holding companies. Please contact us if you have any questions.
Dina Kapur Sanna and Carl A. Merino co-authored an article, "Long Arm of the Law: The Risk to U.S. Practitioners of Prosecution for Facilitating Foreign Tax Offenses," (subscription required) in the June 2017 issue of Trusts & Estates Magazine.
On June 15, Dina Kapur Sanna and Carl A. Merino moderated a discussion panel at the Cambridge International Wealth Advisors Forum 2.0 held in Lisbon about the role of wealth advisors as "gatekeepers" to the financial system and measures being implemented by different jurisdictions to combat money laundering and tax evasion, including obligations imposed on lawyers and other advisors.
Warren Whitaker attended and presented on "The Bad Client: How to Identify and Avoid Them" at the International Wealth Advisors Forum last week, April 26-28, in Marbella, Spain.
Von Sanborn was featured in an article, "Five Questions: Von Sanborn on Art Law, Insurance and the IRS," published in the Connecticut Law Tribune.
Day Pitney LLP was mentioned in an article, "Day Pitney Named Law Firm of the Year by Family Wealth Report," in the Hartford Business Journal.
Day Pitney LLP was named 'Law Firm of the Year' by Family Wealth Report at its 2017 Awards Ceremony at the Mandarin Oriental Hotel in New York City.
Tina Albright was mentioned in an article, "On the Move," in the New York Law Journal. Albright recently joined Day Pitney as a partner in its Trusts and Estates practice.