New FATCA reporting FAQ published: IRS provides guidance for Model 1 FFIs regarding collection of missing US TINs

14/11/19

In brief

On 15 October 2019, the Internal Revenue Service (“IRS”) has updated its FATCA FAQs, section reporting, by publishing a new FAQ with respect to missing US TINs. Reporting Model 1 FFIs are not required to immediately close or withhold on US reportable accounts that do not contain a US TIN beginning 1 January 2020.

In detail

Based on the Luxembourg-US Intergovernmental Agreement (“IGA”), Luxembourg Reporting Financial Institutions should use best efforts to collect the US TIN of their US clients/investors (including on US Controlling Persons of Passive NFFEs) for accounts opened prior to the entry into force of FATCA (the Pre-existing Accounts).

The Notice 2017-46 issued by the IRS in September 2017 provided for a 3-year transition relief period for Model 1 Foreign Financial Institutions (“FFIs”) to obtain US TINs for Pre-existing Accounts. The failure to obtain the US TIN was not considered as significant non-compliance with Model 1 IGAs provided that the FFI has obtained and reported the dates of birth of the pre-existing US reportable account holders (i.e investors/clients) and contacted annually those persons to obtain such missing information.

As the 3-year transition relief period is ending on 31 December 2019, the IRS has published a new FAQ providing guidance for Model 1 FFIs that did not obtain missing US TINs from US reportable account holders in 2017, 2018 and 2019. The first year a US TIN will be required to be reported concerning a US reportable account is with respect to the reporting year 2020, which is due to be exchanged by 30 September 2021 by competent tax authorities. Nevertheless, the IRS specifies that Reporting Model 1 FFIs will not be immediately required to close accounts or withhold on accounts with missing US TINs beginning 1 January 2020.

At first, Reporting Model 1 FFIs will receive an error notice each time a US TIN is missing or was completed with a substitute identification number for reporting purposes (e.g. nine As etc.). The error notice will trigger a countdown of 120 days allowing Reporting Model 1 FFIs to correct the issue and obtain the US TIN.

Past the 120-day period, the IRS will determine whether significant non-compliance can be established by assessing on a case-by-case basis the facts and circumstances that led to the absence of the TIN, notably whether adequate procedures are in place and whether best efforts were made by Model 1 FFIs to obtain the TIN.

Thus, Luxembourg Reporting FIs have to ensure that they have put in place internal procedures allowing them to obtain the missing TINs from pre-existing account holders, that best efforts were made in that respect and that they requested annually the US TINs as prescribed by the Notice 2017-46. In addition, in the absence of a US TIN, they need to ensure that the date of birth has been obtained from each account holder and Controlling Person and included in the FATCA report.

In case significant non-compliance is established, the IRS will further cooperate with FATCA partners, e.g. the Luxembourg tax authorities, over the next 18 months to address the non-compliance before taking any other further action, such as removing the FI’s GIIN from the IRS FFI list (resulting in a risk of withholding on US source payments).

What’s next?

Luxembourg Reporting FIs should review their client/investor portfolio in order to determine:

  • Whether all their US clients/investors including Controlling Persons of Passive NFFEs have been contacted every year to collect the missing US TIN; and
  • Whether all pre-existing entity accounts with an aggregate value of USD 1 million for which no FATCA self-certification was obtained and that have to be treated and reported as Specified US Persons (even though they have no US indicia) under the current interpretation of the Luxembourg-US IGA, have been contacted every year to collect the missing FATCA self-certification. As far as such account holders have no US nexus, Luxembourg FIs are effectively unable to obtain US TINs. Further developments in this respect must be observed.

Even though not mandatory, in order to avoid lengthy discussions with the Luxembourg tax authorities and the IRS, if those reminders were inefficient, closing of the concerned accounts before year-end could be contemplated.

Moreover, in order to substantiate that the absence of TINs for US reportable accounts is not the result of deficiencies in their procedures, Luxembourg Reporting FIs should keep record of the actions taken and their communication with clients/investors aiming at obtaining the missing US TINs.

Contact us

Kerstin Thinnes

Partner, AEol Leader, PwC Luxembourg

Tel: +352 49 48 48 3177

Pierre Kirsch

Managing Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 4031

Amandine Horn

Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 2026

Camille Perez

Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 4618

Frauke Anna Maria Ortmann

Senior Manager, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 3762