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Finally-IGA Provides Relief From FATCA For Some Financial Institutions, Says Grant Thornton LLPTORONTO --(Business Wire)-- The long-anticipated Foreign Account Tax Compliance Act (FATCA) United States - Canada Intergovernmental agreement (IGA) was released on February 5, 2014. And as Dan Lundenberg, National Leader, US Tax Services, Grant Thornton (News - Alert) LLP notes "this is great for Canadian financial institutions, as they now have the final guidance on how FATCA will apply to them. However, those expecting a blanket exemption for Canadian institutions will be disappointed. FATCA will apply to Canadian financial institutions in a similar way to UK financial institutions. The big mystery is why this agreement took so long to finalize." FATCA is a 2010 US law aimed at foreign financial institutions (FFIs) and other financial intermediaries to prevent tax evasion by US citizens and residents through the use of offshore accounts. When put into effect starting on July 1, 2014, FATCA will require many FFIs to catalogue their US account holders and report information about their accounts annually. Canadian FIs will do so through new reporting to the CRA. FATCA IGA highlights for Canadian financial institutions Canadian financial institutions (FIs) that are not exempt from FATCA will not be required to enter into an agreement with the Internal Revenue Service (IRS). However, non-exempt Canadian FIs are still required to register on the IRS FATCA portal and receive a Global Intermediary Identification Number (GIIN). "And just as we anticipated, the IGA has provided an exemption from FATCA reporting for certain accounts," Lundenberg continues. These accounts include
In addition, the following Canadian FIs wll be considered non-reporting Canadian financial institutions that will be treated as deemed-compliant FFIs:
One of the most important pieces of the IGA is the phased-in reporting of the required information on each US account holder.
Next steps for Canadian FIs 1 FATCA classification: determining classification under FATCA to determine whether registration is required. 2 IRS registration: for those not exempt, register no later than April 25, 2014 on the IRS online portal and obtain a GIIN. This deadline is critical as the IRS will publish its first list of registered FFIs by June 2, 2014 (and will update this list on a monthly basis thereafter). 3 Those who do not register with the IRS by April 25, 2014 will be subject to the 30% FATCA withholding tax. This withholding will start on US source income-such as dividends, interest-paid starting July 1, 2014. US withholding agents will confirm a Canadian FI's status as being onside with FATCA by reviewing the IRS published list. 4 New client on-boarding procedures must be in put in place for all new accounts opened on or after July 1, 2014. Canadian FIs will need to change their new account procedures to determine the US status of new clients. Canadian FIs can adopt the self-certification/documentary evidence approach in verifying whether the account holder is US citizen or US resident for tax purposes.
Later steps Lundenberg states that although the IGA's outlined steps are pretty straightforward, time is definitely the biggest constraint. Canadian FIs with reporting obligations must consider how FATCA's requirements impact their internal systems and should note that they may require sophisticated IT systems or will have to configure their current IT systems to allow for the required information gathering and reporting.
Notes to editors
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