Solely for purposes of Chapter 4 of the Internal Revenue Code, account means a financial account as defined in Treas. Reg. §1.1471-5(b) and includes a depository account, custodial account, any equity or debt interest in a financial institution, any cash value insurance contract and any annuity contract issued or maintained by a financial institution. 

The term account holder is the person listed or identified as the holder or owner of the account with the FFI that maintains that account, regardless of whether the entity is a flow-through entity. 

An active NFFE is any entity that is an NFFE if less than 50 percent of its gross income for the preceding calendar year is passive income and less than 50 percent of the weighted average percentage of assets (tested quarterly) held by it are assets that produce, or are held for, the production of passive income (i.e., dividends, interest, annuities, etc.) 

​The term AML due diligence means the customer due diligence procedures of a financial institution pursuant to the anti-money laundering or similar requirements to which a financial institution, or branch thereof, is subject. This includes identifying the customer (including the owners of the customer), understanding the nature and purpose of the account, and ongoing monitoring. 

​The term beneficial owner means the person who is the owner of the income for tax purposes and who beneficially owns that income. Thus, a person receiving income in a capacity as a nominee, agent or custodian for another person is not the beneficial owner of the income. 

The term broker means any person, U.S. or foreign, that, in the ordinary course of a trade or business during the calendar year, stands ready to effect sales to be made by others. A broker includes an obligor that regularly issues and retires its own debt obligations, a corporation that regularly redeems its own stock, and a clearing organization that affects sales of securities for its members. A broker does not include an international organization that redeems or retires an obligation of which it is the issuer, a stock transfer agent that records transfers of stock for a corporation if the nature of the activities of the agent is such that the agent ordinarily would not know the gross proceeds from sales, an escrow agent that effects no sales other than such transactions as are incidental to the purpose of escrow (such as sales to collect on collateral) or a corporation that issues and retires long-term debt on an irregular basis.

​A certified deemed-compliant FFI means an FFI that has certified as to its status as a deemed-compliant FFI by providing a withholding agent with the documentation applicable to the relevant deemed-compliant category. A certified deemed-compliant FFI is not required to register with the IRS.

Any change in an account holder's or payee's information that can alter or change the certifications made by such account holder or payee or that can change the account holder’s or payee’s Chapter 3, Chapter 4 or Chapter 61 status. For example, for foreign status, the instruction of U.S. indicia is considered a change in circumstance. Additionally, for an FFI, the removal of the FFI’s GIIN from the IRS GIIN list is considered a change in circumstance. 

For purposes of Chapter 4 of the Internal Revenue Code, any reference to Chapter 3 means Sections 1441 through 1464 and the regulations thereunder, but does not include Sections 1445 and 1446 and the regulations thereunder, unless the context indicates otherwise. 

The term Chapter 4 of the Internal Revenue Code means Sections 1471 through 1474 and the regulations thereunder. 

​The term Chapter 4 reportable amount means an amount reportable on a Form 1042-S for purposes of Chapter 4 of the Internal Revenue Code (Sections 1471-1474). This means U.S.-source FDAP income (regardless of whether subject to withholding under Chapter 4 and including a passthru payment that is U.S.-source FDAP income), gross proceeds subject to withholding under Chapter 4, and foreign pass-thru payments subject to withholding under Chapter 4. 

The term Chapter 4 status means, with respect to a person, the person’s status as a U.S. person, a specified U.S. person, a foreign individual, a participating FFI, a deemed-compliant FFI, a Model 1 FFI, an exempt beneficial owner, a nonparticipating FFI, a territory financial institution, a QI branch of a U.S. financial institution, an excepted NFFE or a passive NFFE.

A complex trust is a trust that is not a simple trust or a grantor trust. 

The term custodial account means an account for the benefit of another person that holds any financial instrument or contract held for investment (including, but not limited to, a depository account, a share or stock in a corporation, a note, bond, debenture or other evidence of indebtedness, a currency or commodity transaction, a credit default swap, a swap based upon a non-financial index, a notional principal contract, an insurance or annuity contract, and any option or other derivative instrument) for the benefit of another person. 

The Foreign Account Tax Compliance Act (FATCA) is codified as Chapter 4 of the Internal Revenue Code. It represents the Treasury Department's efforts to prevent U.S. taxpayers who hold financial assets in non-U.S. financial institutions (foreign financial institutions or FFIs) and other offshore vehicles from avoiding their U.S. tax obligations. The intent behind the law is for foreign financial institutions (FFIs) to identify and report to the IRS U.S. persons holding assets abroad and for certain non-financial foreign entities (NFFEs) to identify their substantial U.S. owners. In order to comply with the rules, FFIs are required to enter into an FFI agreement with the U.S. Treasury or comply with intergovernmental agreements (IGAs) entered into by their local jurisdictions. U.S. withholding agents (USWAs) must document all of their relationships with foreign entities in order to assist with the enforcement of the rules. Failure to enter into an agreement or provide required documentation will result in the imposition of a 30% withholding tax on certain payments made to such customers and counter-parties. Failure to impose the requisite withholding under FATCA requirements could result in significant financial exposure. 

​The FATCA registration portal is a web-based tool that will be implemented to manage all required registrations, agreements and certifications between institutions subject to FATCA requirements and the IRS.

​The term FATF means the Financial Action Task Force, which is an inter-governmental body that develops and promotes international policies to combat money laundering and terrorist financing.

The term FATF-compliant means the relevant jurisdiction is not subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/TF) risks emanating from the jurisdiction; is not a jurisdiction with strategic AML/CFT deficiencies that has not made sufficient progress in addressing the deficiencies; and is not a jurisdiction with strategic AML/CFT deficiencies irrespective of whether the jurisdiction has agreed upon an action plan with the FATF

​The term FDAP income means fixed or determinable annual or periodic income. Includes interest, dividends, rents, royalties, commissions, fees and premiums.

An FFI is defined as any financial institution that is a foreign entity, other than a financial institution organized under the laws of a possession of the United States. Financial institution means any entity that: (i) accepts deposits or other similar investments of funds in the ordinary course of a banking or similar business (Depository Institution); (ii) holds, as a substantial portion of its business, financial assets for the benefit of one or more other persons (Custodial Institution); (iii) primarily conducts trading in money market instruments, foreign currency, foreign exchange interest rate, and index instruments, transferable securities or commodity futures; individual or collective portfolio management; or investing, administering or managing funds, money or financial assets on behalf of other persons (Investment Entity); (iv) is an insurance company or holding company within an expanded affiliated group that includes an insurance company, and the insurance company or holding company issues, or is obligated to make payments with respect to a cash value insurance or annuity contract (Specified Insurance Company); or (v) is a holding company that holds stock in other members of its expanded affiliated group or treasury center that is part of an expanded affiliated group that includes a depository institution, custodial institution, insurance company or investment entity or is formed in connection with, or availed of by, an investment vehicle established with an investment strategy of investing, reinvesting or trading in financial assets (Holding Company or Treasury Center).

​​The term FFI agreement refers to an agreement between the IRS and the participating FFI. An FFI agreement includes a QI agreement, a withholding partnership agreement and a withholding trust agreement that is entered into by a Model 1 FFI that has an effective date or renewal date on or after June 30, 2014. 

Section 1471(d)(2) defines a financial account as any depository account, any custodial account, and any equity or debt interest in an FFI, other than interests that are regularly traded on an established securities market. It includes traditional bank, brokerage, money market accounts and interests in investment vehicles and excludes most debt and equity securities issued by banks and brokerage firms, subject to an anti-abuse rule. It excludes certain savings accounts (including both retirement and pension accounts and nonretirement savings accounts) that meet certain requirements with respect to tax treatment and the type and amount of contributions. It also excludes any account that otherwise constitutes a financial account if it is held solely by one or more exempt beneficial owners or by nonparticipating FFIs that hold the account as intermediaries solely on behalf of one or more such owners. Thus, a participating FFI need not determine whether such an account is a U.S. account or held by a recalcitrant account holder.

​The term flow-through entity means a partnership, simple trust or grantor trust, as determined under U.S. tax principles.

The term flow-through withholding certificate means a Form W-8IMY submitted by a foreign partnership, foreign simple trust or foreign grantor trust.

​A foreign entity is any entity that is not a U.S. person, including a territory entity.

The final regulations reserve on the definition of a foreign passthru payment.

​The term foreign payee means any payee other than a U.S. payee. 

The term foreign person means any person other than a U.S. person and includes, with respect to a withholdable payment, a foreign branch of a U.S. person that furnishes an intermediary withholding certificate indicating that it is a QI.

​A GIIN is the identification number used to identify the FFI for FATCA registration purposes and U.S. information reporting purposes. This represents a combination of the FATCA ID and FFI EIN that were outlined in the proposed regulations.

​Grandfather obligations are any obligation outstanding on July 1, 2014, but does not include any legal agreement or instrument that: (1) is treated as equity for U.S. tax purposes, (2) lacks a stated expiration or term (for example, a savings deposit or demand deposit, a deferred annuity contract or a life insurance contract or annuity contract that permits a substitution of a new individual as the insured or as the annuitant under the contract), (3) is a brokerage agreement, custodial agreement, investment linked insurance contract, investment linked annuity contract or similar agreement to hold financial assets for the account of others and to make and receive payments of income and other amounts with respect to such assets, or (4) is a master agreement that merely sets forth standard terms and conditions that are intended to apply to a series of transactions between parties but that does not set forth all of the specific terms necessary to conclude a particular transaction. 

​A grantor trust is a trust where one or more persons are treated as owners of all or a portion of the trust under Sections 671 through 679. If only a portion of the trust is treated as owned by a person, that portion is a grantor trust with respect to that person.

​The term gross proceeds means the proceeds from any sale, exchange or disposition of property that requires recognition of gain or loss under Section 1001, without regard to whether the owner of such property is a foreign person that is not subject to U.S. federal income tax with respect to such sale, exchange or disposition. For purposes of this definition, property is of a type that can produce interest or dividends that would be U.S.-source FDAP income. 

​The term insurance company means a company for which more than half of the business during the calendar year is issuing (or being obligated to make payments with respect to) insurance or annuity contracts or the reinsuring of such contracts.

​Intergovernmental agreements are agreements between the U.S. and foreign jurisdictions intended to enable FFIs to identify and report, to the IRS, U.S. persons that hold assets abroad and for certain non-financial foreign entities (NFFEs) to identify their substantial U.S. owners. In order to comply with the rules, FFIs are required to enter into an FFI agreement with the U.S. Treasury or comply with IGAs entered into by their local jurisdictions. USWAs must document all of their relationships with foreign entities in order to assist with the enforcement of the rules.

An intermediary means, with respect to a payment that it receives, a person that, for that payment, acts as a custodian, broker, nominee or otherwise as an agent for another person, regardless of whether such other person is the beneficial owner of the amount paid, a flow-through entity or another intermediary.

​The term intermediary withholding certificate means a Form W-8IMY submitted by an intermediary.

​A limited branch is a branch of an FFI that, under the laws of the jurisdiction as of February 15, 2012, and that apply with respect to the accounts maintained by the branch, cannot do certain things. It cannot, with respect to accounts and the FFI agreement it is required to treat as U.S. accounts, report such accounts to the IRS, close such accounts within a reasonable period of time or transfer such accounts to a branch of the FFI, a participating FFI member of the expanded affiliated group of the FFI, or another participating FFI that may so report. It also cannot, with respect to recalcitrant account holders and accounts held by nonparticipating FFIs, withhold with respect to each such account, block such accounts (an account is considered blocked when the FFI prohibits the account holder from effecting any transactions with respect to an account until such time as the account is closed, transferred or the account holder provides the documentation for the FFI to determine the U.S. or non-U.S. status of the account), close each such account within a reasonable period of time or transfer such account to another branch of the FFI or a participating FFI member of the expanded affiliated group of the FFI that is not subject to the restrictions with respect to such account holders. 

​A limited FFI is a member of an expanded affiliated group that includes one or more participating FFIs that agree to the conditions to become a limited FFI and if under the laws of each jurisdiction that apply with respect to the accounts. A limited FFI is required to treat as U.S. accounts, report such accounts to the IRS, close such accounts within a reasonable period of time or transfer such accounts to an affiliate or other participating FFI that may so report. With respect to recalcitrant account holders and accounts held by nonparticipating FFIs, a limited FFI is required to withhold with respect to each such account, block each such account, close each such account within a reasonable period of time or transfer each such account to an affiliate of the FFI that is a participating FFI. 

The term NFFE means a foreign entity that is not a financial institution (including a territory NFFE). The term also means a foreign entity treated as an NFFE pursuant to a Model 1 IGA or Model 2 IGA. 

​The term nonparticipating FFI means an FFI other than a participating FFI, a deemed-compliant FFI or an exempt beneficial owner.

​A nonqualified intermediary means any intermediary that is not a U.S. person and not a qualified intermediary or a qualified intermediary that is not acting in its capacity as a qualified intermediary with respect to a payment.

​An NQI shall provide a withholding statement to the extent the nonqualified intermediary is required to furnish, or does furnish, documentation for payees on whose behalf it receives reportable amounts or to the extent it otherwise provides the documentation of such payees to a withholding agent.

​The term non-withholding foreign partnership, or NWP, means a foreign partnership that is not a withholding foreign partnership.

​The term non-withholding foreign trust, or NWT, means a foreign trust that is a simple trust or grantor trust and is not a withholding foreign trust.

​The term offshore obligation means any account, instrument or contract maintained and executed at an office or branch of a withholding agent at any location outside of the United States or in any location in a possession of the United States. The term payment with respect to an offshore obligation means a payment made outside of the United States, within the meaning of 1.6049-5(e), with respect to an offshore obligation.

​The term participating FFI means an FFI that has agreed to comply with requirements of an FFI agreement, including an FFI described in a Model 2 IGA that has agreed to comply with the requirements of an FFI agreement. The term also includes a QI branch of a U.S. financial institution, unless such branch is a reporting Model 1 FFI.

​The term participating FFI means an FFI that has agreed to comply with requirements of an FFI agreement, including an FFI described in a Model 2 IGA that has agreed to comply with the requirements of an FFI agreement. The term also includes a QI branch of a U.S. financial institution, unless such branch is a reporting Model 1 FFI.

​The term partnership means a business entity that is not a corporation and that has at least two members. 

​The term passive NFFE means an NFFE other than an excepted NFFE.

​The term passthru payment means any withholdable payment and any foreign passthru payment.

​​For purposes of Chapter 4 of the Internal Revenue Code, a payee is the person to whom a payment is made, regardless of whether such person is the beneficial owner of the amount.

​The term payor means any person who is required to make an information return with respect to any reportable payment, including any middlemen.

​The term person means an individual, a trust, estate, partnership, association, company or corporation. The term person does not include a wholly owned entity that is disregarded for federal tax purposes as an entity separate from its owner. Notwithstanding the previous sentence, the term person includes, with respect to a withholdable payment, a foreign branch of a U.S. person that furnishes an intermediary withholding certificate indicating that it is a QI. 

​The term possession of the United States means American Samoa, Guam, the Northern Mariana Islands, Puerto Rico or the U.S. Virgin Islands.

​A preexisting entity account is a financial account held by one or more entities that is a preexisting obligation. 

​A preexisting individual account is a financial account held by one or more individuals that is a preexisting obligation. 

The term preexisting obligation means any account, instrument or contract maintained or executed by the withholding agent as of July 1, 2014. With respect to a participating FFI, the term preexisting obligation means any account, instrument or contract maintained or executed by the FFI prior to the date that the participating FFI's FFI agreement becomes effective. With respect to a registered, deemed-compliant FFI, a preexisting obligation means any account, instrument or contract maintained or executed by the FFI prior to the earlier of the date that the FFI registers as a deemed-compliant FFI or the date the FFI implements its required account opening procedures.

​​A set of rules used to determine the status of the account holder or person you pay as U.S. or foreign and other relevant characteristics, including their status under Chapters 3 and 4, where you cannot reliably associate an account holder or payment with valid documentation. 

A prima facie FFI is any payee if the withholding agent has available, as a part of its electronically searchable information, a designation for the payee as a QI or NQI. Or, for an account maintained in the United States, the payee is presumed to be a foreign entity or is documented as a foreign entity for purposes of Chapter 3 or 61, and the withholding agent has recorded, as part of its electronically searchable information, a standardized industry code that indicates that the payee is a financial institution. 

​A QI agreement is a withholding agreement entered into with the Internal Revenue Service (IRS) pursuant to Rev. Proc. 2014-39 and Treasury Regulation §1.1441-1(e)(5) by a foreign entity. Under its terms, the QI generally must report annually certain aggregate information concerning the beneficial owners of U.S.-source payments and make any necessary tax payments to the IRS. Rev. Proc 2000-12, 2000- 4 I.R.B. 387, which previously set forth the QI agreement, has been superseded by the 2014 agreement.

With respect to a payment to a foreign person, the term qualified intermediary means a person that is a party to a withholding agreement with the IRS and such person is: (A) an FFI or a foreign clearing organization, (B) a foreign branch or office of a U.S. financial institution or a foreign branch or office of a U.S. clearing organization, (C) a foreign corporation for purposes of presenting claims of benefits under an income tax treaty on behalf of its shareholders, or (D) any other person acceptable to the IRS.

The term recalcitrant account holder means any account holder of an account maintained by a participating FFI if such account holder is not an FFI (or presumed to be an FFI), the account does not meet the exception to U.S. account status (applying to depository accounts with a balance of $50,000 USD or less) or does not qualify for any of the exceptions from the documentation requirements (including if the participating FFI elects not to apply such exceptions), and the account holder fails to comply with requests by the participating FFI for the documentation or information that is required for determining the status of such account as a U.S. account or other than a U.S. account, the account holder fails to provide a valid Form W-9 upon request from the participating FFI or fails to provide a correct name and TIN combination upon request from the participating FFI when the participating FFI has received notice from the IRS indicating that the name and TIN combination reported by the participating FFI (or branch or division thereof) for the account holder is incorrect, or if foreign law would prevent reporting by the participating FFI (or branch or division thereof) on information with respect to such account, the account holder (or substantial U.S. owner of an account holder that is a U.S.-owned foreign entity) fails to provide a valid and effective waiver of such law to permit such reporting.

​An NFFE that does not disclose its substantial U.S. owners or that fails to certify it does not have substantial U.S. owners.

​The term recipient means a person that is a recipient of a Chapter 4 reportable amount and includes the person required to be reported on a Form 1042-S with respect to a payment of U.S.-source FDAP income. With respect to a payment other than U.S.-source FDAP income, the regulations reserve. 

A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. 

​​Specific indicia detailed in the FATCA regulations indicating that a person is a U.S. citizen or tax resident such as a U.S. mailing address, U.S. phone number, etc.

​An officer of a participating FFI, registered deemed-compliant FFI, or a compliance FI with sufficient authority to ensure the FFI meets its applicable FFI requirements. Among other things, the responsible officer of a participating FFI must certify every three years that the entity remains compliant.

​A USWA is any U.S. person that is a withholding agent. That includes any person that has the control, receipt, custody over the disposal or payment of a withholdable payment or foreign passthru payment. This is generally a non-individual U.S. person and includes domestic partnerships, domestic corporations, any non-foreign estates and any trusts if a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have authority to control all substantial decisions of the trust. A U.S. person also includes a foreign branch of a U.S. person that is not a qualified intermediary acting as an intermediary with respect to a payment. 

​The term withholdable payment means any payment of U.S.-source FDAP income and any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends that are U.S.-source FDAP income. 

​A withholding partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. A withholding trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity.

A withholding statement provides an allocation (by income type) to each payee (or withholding rate pool, if applicable) of each payment an intermediary or flow-through entity receives. The withholding statement forms an integral part of the withholding certificate, and the penalties of perjury statement provided on the withholding certificate shall apply to the withholding statement. The withholding statement may be provided in any manner the intermediary or the flow-through entity and the withholding agent mutually agree, including electronically if certain safeguards concerning electronic transmission are met. A withholding statement also provides information required for purposes of Chapter 4 if the intermediary or flow-through entity is receiving a withholdable payment, in which case the entity must provide an FFI withholding statement, Chapter 4 withholding statement, or exempt beneficial owner withholding statement (as applicable).

​If you have any additional questions, please contact your tax advisor or visit the IRS FATCA website. 

 

The information contained on this site is of a general nature and does not address the legal or tax situation of individual persons or legal entities. There is no guarantee that information provided on this website is up to date, accurate or complete. The information is not tax or legal advice and should not be construed as such. The presented information should not and cannot replace specific advice from your tax and legal professionals.