US FATCA Registration Deadline Approaching: 31
December 2014
The British Virgin Islands (the "BVI") has now
enacted legislation which allows for the
implementation of its commitments under the
Model 1B (i.e. non-reciprocal) intergovernmental
agreements with the United States, signed on 30
June 2014, (the "US IGA") and with the United
Kingdom, signed on 28 November 2013, (the
"UK IGA" and, together with the US IGA, the
"IGAs"). The US IGA provides a framework for
the implementation of the US Foreign Account
Tax Compliance Act ("FATCA") in the BVI and
the UK IGA provides for reports of tax
information to be made to HM Treasury in a
similar manner. The finalisation of the guidance
notes is expected imminently, as is the detail
regarding how tax information is to be passed to
the BVI's International Tax Authority (the "ITA").
and the guidance notes but include banks,
investment funds and any holding company that
holds financial assets for the account of others
as a substantial portion of its business.
What is the obligation?
Failure by a BVI FI to comply with the US IGA,
which includes failure to report to the BVI's ITA
where and in the manner required to do so, may
lead to an imposition of a 30% withholding on
US source payments to the entity.
The IGAs impose an obligation on the BVI to
obtain and annually exchange certain financial
information with respect to all Reportable
Accounts.
A Reportable Account for the purposes of the
IGAs is, broadly, an account maintained by a
Reporting BVI Financial Institution ("FI"), which
includes equity or debt interests in an
Investment Entity, and held, in the case of the
US IGA, by one or more Specified US Persons
or by a non-US Entity with one or more
controlling persons that is a Specified US
Person and, in the case of the UK IGA, an
account maintained by a Reporting BVI FI and
held by one or more Specified UK Persons or by
a non-UK Entity with one or more controlling
persons that is a Specified UK Person.
An FI for these purposes means a Custodial
Institution, a Depositary Institution, an
Investment Entity, or a Specified Insurance
Company. These are further defined in the IGAs
Annex II to the IGAs contain definitions of certain
entities which are to be treated as exempt
beneficial owners, deemed-complaint BVI FIs or
accounts that are excluded from the definition of
Financial Accounts. In addition, the draft
guidance notes explain that, in relation to the US
IGA, an entity may also elect to rely on
definitions from the US Regulations and explains
that, as a result, for certain elements, either the
US IGA definition or the definition set out in the
US Regulations may be used by an entity when
looking at the exemptions available to it.
All Reporting BVI FIs must make an application
for registration with the US Internal Revenue
Service (the "IRS") before 31 December 2014.
With the above in mind, management and
advisors to BVI entities need to carefully
consider whether their BVI entity is a Reporting
FI for the purposes of US FATCA.
Required Analysis
The first step in any analysis is to establish
whether the BVI entity in question is an FI. In
practice, this will likely cover custodians,
nominees, banks, trust companies and trusts,
investment funds (including hedge and private
equity funds), administrators, investment
managers and investment advisers.
At a minimum, FIs should be considering the
following:
(a)
Entity classification - Is it a Reporting FI or
a Non-Reporting FI? Non-Reporting FIs
do not need to register with the IRS for a
Global Intermediary Identification Number
("GIIN") in the case of the US IGA, or
report to the ITA in the case of both IGAs.
(b)
Registration - If the entity is a Reporting FI
for the purposes of the US IGA, a
registration application should be
submitted to the IRS for a GIIN.
(c)
Due diligence - For Reporting FIs, a due
diligence programme should be put in
place which meets the requirements of
Annex I to the IGAs within the relevant
deadlines.
(d)
Reporting - For Reporting FIs, procedures
should also be implemented in due course
so that the required information on any
Reportable Accounts is reported to the ITA
within the prescribed time limits.
The remainder of this update looks at the first
two considerations in more detail.
managers and investment advisers who meet
certain conditions. In addition, there is a
category of 'collective investment vehicle' of
which some investment funds may be able to
take advantage. Conditions of this category
include being 'regulated' and where all debt and
equity interests are held by limited categories of
investor.
It should be noted that the structure of the US
IGA is such that the list of entities in Annex II
may be expanded by the inclusion of additional
categories of entity either expressly or by
reference to categories of deemed compliant
entities under the US FATCA Regulations.
Registration
Under the US IGA, a BVI Investment Entity
which is a Reporting FI is required to register
with the IRS either through the IRS registration
portal or through manual submission of Form
8957.
If successfully registered, a Reporting FI will be
issued a GIIN. Obtaining a GIIN is the method
by which Reporting FIs demonstrate FATCA
compliance as US withholding agents are
required to verify the GIIN against lists that will
be published by the IRS.
Entity Classification
The IGAs categorise FIs as either "Reporting
FIs" or "Non-Reporting FIs". By default, all FIs
are Reporting FIs, unless they qualify as NonReporting FIs. For the purposes of the US IGA,
only Reporting FIs are required to register with
the IRS and obtain a GIIN.
The types of Non-Reporting FI are specified in
Annex II to the IGAs. Annex II is significant
because it allows entities that can be classified
as 'exempt beneficial owners' and, for the
purposes of the US IGA, 'deemed compliant FIs'
to operate as Non-Reporting FIs. Notably, there
are no due diligence or reporting obligations on
Non-Reporting FIs and, for the purposes of the
US IGA, there is no requirement to register with
the IRS for a GIIN.
Annex II includes exemptions for sponsored
investment entities as well as investment
Non-Reporting FIs (under Annex II of the US
IGA) and non-financial foreign entities
("NFFEs"), whether Active or Passive NFFEs,
are not required to register although they may
be required to self-certify their status to
withholding agents in order to avoid the
imposition of any withholding tax.
Withholding agents are not required to verify
GIINs on payments made prior to 1 January
2015 where the payee is a Reporting FI in a
Model 1 IGA jurisdiction such as the BVI.
Accordingly, BVI Reporting FIs can effect
registration through to the end of 2014 and, if
necessary, may self-certify their status to
withholding agents after 1 July 2014 to avoid
withholding.
It should be noted, however, that BVI Reporting
FIs that are: (i) maintaining one or more
branches (other than a Limited Branch or US
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branch) in jurisdiction(s) that are not covered by
a Model 1 IGA; (ii) renewing its QI, WP or QT
Agreement; or (iii) intending to be a Lead FI for
one or more Member FIs that are not
established and operating exclusively in other
Model 1 IGA jurisdictions, will not benefit from
the US IGA and will likely need to be covered by
a Foreign Financial Institution ("FFI") agreement.
applicable FFI agreement including the ongoing
compliance requirements set-out therein which
specifically refer to responsibilities of the RO.
Certain FIs may be Non-Reporting FIs if they
can take advantage of one of the Annex II
exemption categories such as sponsored entities
and collective investment vehicles.
While the application requires the RO to certify
that the applicant entity will comply with "its
FATCA obligations in accordance with the terms
and conditions reflected in regulations,
intergovernmental agreements, and other
administrative guidance to the extent applicable
to the FI based on its status in each jurisdiction
in which it operates", put in context for a BVI
Reporting FI we believe this should be read to
mean compliance with the US IGA and any
applicable BVI law.
Further clarity as to the availability of these
exemptions is expected in the finalised guidance
notes. FIs that wish to avoid registration may
therefore wish to hold off until the guidance
notes are finalised.
Unlike W8 and equivalent forms, the GIIN
registration form is not subject to penalties for
perjury which is likely to reflect the fact that
FATCA compliance for BVI Reporting FIs will be
driven by BVI law and not US law.
It may also be prudent to wait until the BVI
regulations and guidance notes have been
enacted so that any issues in relation to duties
of confidentiality and registration with a foreign
tax authority can be avoided.
The FATCA registration website guidance and
Form 8957 also state the term "RO" means the
individual with authority under local law to
confirm the Reporting FI's status and submit the
information provided on its behalf. Controlling
persons (such as directors or general partners)
of BVI based Investment Entities should have,
as a matter of BVI law, the ability (subject
perhaps to a board resolution in the case of
directors) to confirm the Investment Entity's
status as a "Registered Deemed-Compliant FI
under Model 1 IGA" and to submit the
registration application.
Register now or wait?
It is understood that there should be no difficulty
in withholding agents accepting self-certification
from Reporting FIs until the end of 2014 as they
have had to accept self-certification from the
many tens of thousands of Non-Reporting FIs
and NFFEs globally from 1 July 2014.
Responsible Officer
The US IGA makes no reference to Reporting
FIs having to appoint responsible officers ("RO").
Only the GIIN registration application refers to
the RO. The IRS FATCA registration portal
guidance and the Form 8957 instructions both
state that for Model 1 IGA Reporting FIs,
registration is for the purpose of authorising one
or more points of contact to receive information
related to the registration as well as to obtain a
GIIN. Notably for Model 2 IGA Reporting FIs
and (non-IGA) Participating FFIs, both
categories of which are expected to have FFI
agreements in place with the IRS, the guidance
indicates that registration is also for the purpose
of confirming acceptance of the terms of the
Controlling persons (such as directors or general
partners) of Reporting FIs should therefore be
able to nominate/assume the RO role and sign
GIIN registration applications. It is of course still
possible to delegate the registration process to a
third party providing GIIN registration/RO
services.
Action Points
Clients should be taking the following steps as
soon as possible:
(a)
Identify whether the relevant BVI entities
are FIs.
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(b)
(c)
Identify whether any exclusions under
Annex II of the IGAs or other exclusions
under the US FATCA Regulations apply.
If unable to take advantage of any
exclusions under Annex II, consider
whether to register immediately and, in
any event, register before 1 January 2015.
The classification of entities can be complicated
and many clients are looking for assistance in
interpreting the IGAs, the draft guidance notes
and the implementation of the US FATCA
Regulations in the BVI. We would be very
happy to assist with this. If you require further
advice on any of the areas covered in this
bulletin, or indeed in relation to the
implementation of US and UK FATCA in the BVI
generally, please speak with your usual Maples
and Calder contact or a member of our
dedicated FATCA team:
ASIA
BRITISH VIRGIN ISLANDS
Tim Clipstone
+1 284 852 3046
[email protected]
CAYMAN ISLANDS
Kieran Walsh
+1 345 814 5353
[email protected]
LONDON
Matthew Gilbert
+44 20 7466 1608
[email protected]
November 2014
© MAPLES AND CALDER
This update is intended to provide only general information for
clients and professional contacts of Maples and Calder. It does
not purport to be comprehensive or to render legal advice.
Michael Gagie
+852 3690 7435
[email protected]
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