FACTA Phase 2 December 2014

Recap of FATCA

  • FATCA aims to identify US citizens (including those not resident in the US) and U.S. tax residents that are potentially avoiding paying tax by holding offshore investments.
  • FATCA requires foreign financial institutions (FFIs),
    • To provide information to the US Internal Revenue Service (IRS) on their US accountholders or accounts that are held by foreign entities in which a US tax payer holds a substantial ownership interest.
    • In Ireland, FFI report to Revenue who then report to the IRS
  • The wide definition of FFIs includes
    • Banks
    • Life Assurance Companies
    • Investment funds
    • Hedge funds
    • Private Equity Funds
  • Should a FFI fail to meet the disclosure obligations or refuse to produce the information, the IRS can sanction them by imposing a 30% tax on certain payments made to a FFI

What is an FFI?

  • An FFI is a foreign financial institution, which is any non-U.S. entity that:
  • Accepts deposits in the ordinary course of banking or similar business
  • As a substantial portion of its business, holds financial assets for the account of others
  • Is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities.
  • Generally non-U.S. entities such as banks, broker/dealers, insurance companies, hedge funds, securitization vehicles, and private equity funds will be considered FFIs.

Foreign Financial Institution Agreement

FFI’s that enter into an agreement with the IRS will need to capture and report the following information on their U.S. customers:

  • Name & address
  • Taxpayer Identification Number (TIN) of each account holder who is a specified United States person and, in the case of any account holder which is a United States owned foreign entity, the name, address, and TIN of each substantial United States owner of such entity
  • The account number (in the case of Irish Life, it will be policy number)
  • The account balance or value at year end; Gross dividends, interest and other income paid or credited to the account (in the case of a policy, it will be policy value)

What happens in terms of old-style applications received before 1st July but issued on or after 1st July?

  • FATCA legislation applies to all business issued from 1st July so the FATCA question must be answered for all business issuing from this date, including “pipeline” applications
  • Irish Life is not permitted to ask the FATCA question prior to 1st July. This is for data protection reasons ("the data shall be adequate, relevant and not excessive in relation to the purpose or purposes for which they were collected or are further processed" - section 2(1)(c)(iii) of the Data Protection Act). Therefore, the new application form can only be used from 1st July and the FATCA question can only be asked from 1st July
  • Where an old-style application form has been received before 1st July but the policy is due to issue on or after 1st July, New Business will issue a supplementary form that must be completed and signed by the customer – this form will contain the FATCA question

What will change in Irish Life in terms of alterations to customer policies?

  • If at any stage after a policy issues, a request or query is received by Irish Life which makes reference to the United States or indicates that the customer may be a U.S. citizen or U.S. tax resident, this will be noted on our systems and a letter will be sent to the customer.
  • The letter will advise of Irish Life’s obligation to report the policies (and any other policies issued from 1st July 2014) to the IRS via Revenue. A form will be attached which the customer can complete and return to Irish Life, in the event that they are not a U.S. citizen or U.S. tax resident

Examples of queries or requests that might indicate that an individual is a U.S. citizen or U.S. tax resident:

  • Change of address
  • Change of other contact details such as e-mail address or phone number
  • Adding a customer to the policy by way of assignment
  • Top-ups and receipt of anti-money laundering requirements such as address verification documents or passport etc

Correct as of 1st July 2014