A Towers Watson update notes that recently, the IRS issued Notice 2014-33, announcing calendar years 2014 and 2015 will be regarded as a transition period for purposes of IRS enforcement and administration with respect to the implementation of FATCA by withholding agents, foreign financial institutions (FFIs), and other entities with withholding responsibilities that make a “good faith” effort to comply with the final FATCA regulations and the temporary regulations coordinating FATCA with certain preexisting reporting and withholding requirements.
However, Towers Watson warns although enforcement has been relaxed during the transition period, the relevant compliance deadlines have not been extended. As a result, sponsors of non-U.S. retirement plans should not slow their efforts toward compliance. In particular, sponsors of non-U.S. retirement plans still need to determine whether such plans are exempt from FATCA under the regulations or an intergovernmental agreement (IGA), and if they are exempt, furnish a Form W-8BEN-E to their payors of otherwise withholdable income prior to July 1, 2014. If a plan is not exempt, it must register as a participating FFI to avoid U.S. withholding taxes on its U.S.-derived investment income. The deadline to do so for withholding commencing as of July 1, 2014, was May 5, 2014. Registering after that date will enable a plan to avoid withholding for future months.
The transition relief in Notice 2014-33 is aimed at payors with withholding responsibilities under the rules and as such, it does not directly affect non-U.S. retirement plans. However, such plans may benefit indirectly. For example, a financial institution making a payment to a non-U.S. retirement plan that is potentially subject to the 30% FATCA withholding tax should now, under the good faith compliance standard in the Notice, be able to accept a Form W-8BEN-E from the plan claiming an exemption from withholding even though it may not be entirely clear that the form was filled out correctly (since the instructions have not yet been issued and uncertainties remain about how it should be prepared). As a result, where an exemption is available, sponsors should consider sending Form W-8BEN-E to payors as soon as possible, rather than waiting for instructions, to ensure that the payor has sufficient time to process the form prior to July 1, 2014, Towers Watson suggests.
Under FATCA, generally, a non-U.S. retirement plan is an FFI; however, many may fall under an exception (see “Multinationals May Have to Register Non-U.S. Retirement Plans”). FATCA also imposes rules for U.S. individual taxpayers that have non-U.S. retirement plan accounts or investments.
An article by Elizabeth Thomas Dold and David N. Levine of Groom Law Group suggests, although individuals are responsible for their own tax reporting, companies with a mobile work force may also want to work to ensure that there are clear communications made to members of the mobile work force regarding their own individual FATCA reporting responsibilities.