IRS Adds Five New FATCA FAQs Addressing QDD, QI, and WP Concerns

The IRS updated its FATCA frequently asked questions to include five new FAQs.  The new FAQs address issues involving qualified intermediaries (QIs) that are or are seeking to become qualified derivatives dealers (QDDs), non-financial foreign entities (NFFEs) seeking to become withholding foreign partnerships (WPs), the period review requirements applicable to QIs that are QDDs, and the independence standard applicable to external reviewers of a QI, WP, or withholding foreign trust (WT).

Three FAQs were added to the “New Applications/Renewals” section, the first two of which address QIs.  In FAQ#17, the IRS clarifies that a QI that is not currently a QDD does not have to wait for its QI agreement to expire before applying for QDD status.  It also reiterates that branches of QIs wishing to become QDDs must complete their own separate QDD application.  FAQ#18 addresses the effective date (i.e., the date on which the QI can represent itself as a QDD on Form W-8IMY) of a newly-granted QDD status.  If a QI is granted QDD status prior to March 31 of a calendar year, or after March 31 for QIs that have not received any reportable payments before being granted QDD status, that status will become effective as of January 1 of that year.  Otherwise, QDD status will become effective the first day of the month in which the QDD application is approved.  FAQ#19 addresses the circumstances in which an NFFE that is a foreign reverse hybrid entity (a foreign entity that is fiscally transparent for foreign tax purposes but not transparent for U.S. tax purposes) can become a WP (a status reserved for foreign reverse hybrid entities that are FFIs under section 6.03(C) of the WP agreement).  The FAQ clarifies that a foreign reverse hybrid entity that is an NFFE may apply to be a WP but only with respect to payments of personal services income effectively connected with a U.S. trade or business.

The IRS also added a new section titled “Certifications and Periodic Reviews,” consisting of two review-related FAQs.  FAQ#1 addresses the circumstances in which QIs that are QDDs can avoid periodic review for certification periods ending in 2017 and 2018.  Section 10.07 of the QI agreement permits waivers of periodic review requirements for QIs not acting as QDDs, but Notice 2017-42 extended this waiver to QIs that are QDDs for its QDD activities with respect to certification periods ending in 2017 and 2018.  This left open the question of whether such QIs could seek a waiver of periodic review for their non-QDD activities.  FAQ#1 answers this question in the affirmative and provides instructions on the process of applying for a waiver.  In FAQ#2, the IRS expands on the requirement in section 10.04 of the QI agreement and section 8.04 of the WP and WT agreements that an external reviewer of a QI, WP, or WT not review the work of others in the same “firm,” a standard that has raised questions.  Accordingly, the IRS clarifies that for years before 2018, external reviewers may apply the standards otherwise applicable to their engagement to conduct the review (e.g., procedures for a certified public accountant).  The IRS intends to provide further guidance for calendar years 2018 and later.

Updated FAQs on FFI Agreement Renewal

Recently, the IRS updated its FATCA frequently asked questions to include four new FAQs addressing the renewal of foreign financial institution (FFI) agreements.  The new FAQs address the requirement that financial institutions (FIs) must renew their FFI agreements by July 31, 2017, pursuant to Revenue Procedure 2017-16, to be treated as having in effect an FFI agreement as of January 1, 2017.

FAQ#8 clarifies that, generally, FATCA requires the following types of FIs to renew their FFI agreements: participating FFIs not covered by an intergovernmental agreement (IGA); reporting Model 2 FFIs; reporting Model 1 FFIs operating branches outside of Model 1 jurisdictions (other than branches treated as nonparticipating FFIs under Article 4(5) of the Model 1 IGA).  By contrast, renewal is not required for the following types of entities: reporting Model 1 FFIs that are not operating branches outside of Model 1 jurisdictions; registered deemed-compliant FFIs (regardless of location); sponsoring entities; direct reporting non-financial foreign entities (NFFEs); and trustees of trustee-documented trust.

FAQ#9 provides that entities that do not need to renew their FFI agreements do not need to take any action—and do not even need to select “No” on the “Renew FFI Agreement” link—to remain on the FFI list and retain their Global Intermediary Identification Number (GIIN).

FAQ#10 clarifies that an entity that, before January 1, 2017, entered into the FFI agreement under Rev. Proc. 2014-38 (which terminated on December 31, 2016), and that failed to renew its FFI agreement by July 31, 2017, will be considered a nonparticipating FFI as of January 1, 2017, and will be removed from the FFI List.

If an entity that is required to renew its FFI agreement incorrectly selected “No” when asked if renewal is required, FAQ#11 provides that the entity can simply return to the FATCA FFI Registration system home page, click on the “Renew FFI Agreement” link, and select “Yes” to complete the renewal application before the deadline on July 31, 2017.