On September 18, 2015, the IRS issued Notice 2015-66 announcing its intent to amend FATCA regulations to extend timelines for certain transition rules and to reduce certain compliance burdens on withholding agents by modifying the rules for grandfathered obligations. Most importantly, withholding on gross proceeds will not be required until January 1, 2019 (extended from January 1, 2017).
IRS Notice 2015-66 highlights include:
• Gross Proceeds – Withholding on gross proceeds from the sale or disposition of U.S. properties that can produce interest and dividends, which was initially required to begin January 1, 2017, will now not begin until January 1, 2019.
• Foreign Passthru Payments – Withholding by participating FFIs on foreign passthru payments made to recalcitrant account holders or nonparticipating FFIs which was initially required to begin on January 1, 2017 (or the date of publication of final regulations, if later), has been extended to January 1, 2019 (or the date of publication of final regulations, if later). Given the complexity of this rule, the IRS extended the deadline to facilitate an orderly phase-in of this withholding requirement.
• Limited Branches and Limited FFIs – FFIs will be considered either participating FFIs or registered deemed-compliant FFIs when FFIs have a branch or affiliate located in a jurisdiction that does not allow the branch or affiliate to comply with an FFI agreement until December 31, 2016 (extended from December 31, 2015).
• Sponsored Entity GIINs – The deadline for which a sponsoring entity must register with the IRS as a sponsoring entity and register its sponsored registered deemed-complaint FFIs has been extended from the later of January 1, 2016, or the date that the FFI identifies itself as a qualifying registered deemed-compliant FFI, to January 1, 2017. This extension also applies to sponsored direct reporting NFFEs. The extension should be very good news for taxpayers that use sponsoring entities.
• Treatment of Collateral for Grandfathered Obligations – To ease administrative burdens for secured parties, when collateral secures both grandfathered obligations and non-grandfathered obligations, the rule requiring withholding on a pro rata basis will no longer be mandatory. Instead, the secured party can withhold on the entire payment or apply a pro rata approach. While easing administrative burdens, this rule could negatively impact parties subject to withholding.