FATCA: Revised Deadlines: IRS and Treasury Department Issue Notice Postponing Certain FATCA Deadlines and Expanding Scope of FATCA “Grandfather” Rules

Sullivan & Cromwell LLP - October 25, 2012

Yesterday, the IRS and Treasury Department issued Announcement 2012-42 (the “Announcement”), which delays certain FATCA compliance deadlines and identifies three new classes of “grandfathered obligations.” Key changes noted in the Announcement include the following:

  • “Gross proceeds” withholding will only apply to sales or dispositions occurring after December 31, 2016. Previously, “gross proceeds” withholding was to be effective for sales or dispositions occurring after December 31, 2014.
  • FATCA’s grandfathering deadline (currently December 31, 2012) will be extended for “obligations” that could be subject to FATCA withholding solely because future guidance treats them as generating either: (i) “foreign passthru payments” or (ii) U.S.-source “dividend equivalent” payments. Such instruments will be grandfathered if they are “outstanding” on the date that is six months after the date when final guidance that would otherwise subject them to FATCA withholding is issued.
  • Obligations to make payments with respect to collateral posted to secure an obligation under a grandfathered notional principal contract will also be eligible for grandfathering from FATCA.
  • As discussed in additional detail below, the timeframes under which “foreign financial institutions” (“FFIs”) and other withholding agents will need to review their accounts under FATCA will be modified and generally extended. The new timelines generally harmonize the timelines for FFIs in jurisdictions with and without FATCA intergovernmental agreements (“IGAs”).
  • FFIs in countries that do not sign IGAs will be required to file their first FATCA account reports on March 15, 2015 (the same date when the first such reports from FFIs in IGA countries are due under the model IGAs), rather than the earlier proposal of September 30, 2014.

The Announcement does not modify the January 1, 2014 date on which FATCA withholding will commence on U.S.-source “withholdable payments.” In addition, the Announcement observes—in an appendix—that withholding and reporting will need to begin with respect to any documented account, even if the deadline for reviewing that account has not yet expired.