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.
On March 27, Warren Whitaker will be speaking on "Passing Down Your Prized Possessions: How to Avoid Fights and Fees In Your Estate," a seminar hosted by the New-York Historical Society's Planned Giving Advisory Council and held at the Robert H. Smith Auditorium in New York City.
Warren Whitaker will be serving as chair of the 15th Annual International Estate Planning Institute, hosted by the New York State Bar Association and The Society of Trust and Estate Practitioners USA (STEP USA).
Von Sanborn co-authored an article, "The New Hampshire Foundation Act: A Solid Foundation for Wealth Management on a Global Scale," published by the Bloomberg BNA Tax Management Estates, Gifts and Trusts Journal.
On February 20, Von Sanborn will be presenting on "Passionate Collecting, Thoughtful Ownership: Collecting, Owning and Selling Art" at a STEP Southwest Florida Chapter event.
On January 16, Carl Merino and Warren Whitaker participated in "Estate Planning Across Borders: A Guide for the Perplexed," a program at the annual meeting of the New York State Bar Association presented by the Trusts and Estates Law Section.
Von Sanborn was featured in an article, "Tax Screw-Ups and People Problems: Experts Reveal Biggest Blunders of Rich Families," published by Bloomberg.
Von Sanborn was quoted in an article, "U.S. Family Offices Face Increasing Competition from Foreign Families," published by Private Asset Management.
International tax partner Von Sanborn was quoted in an article, "Six Family Offices Themes Likely to Set the Agenda in 2019," published by Fund Intelligence.
Day Pitney Press Release
Day Pitney Press Release