In order to be FATCA registered and exempt from withholding by U.S. withholding agents, a Foreign Financial Institution (FFI) must have a Global Intermediary Identification Number (GIIN). A Foreign Financial Institution withoutaGIIN is treated as unregistered in FATCA and faces a 30% withholding tax on certain U.S. source payments of Fixed Determinable Annual Payments (FDAP). Existence of a GIIN permits quick confirmation that an FFI is FATCA registered and exempt from withholding. FFIs without a GIIN run the risk of withholding as well as isolation from an international and cross-border banking system that relies on transactions that go through the US banking system.
May an FFI lose its GIIN?
Yes, if the IRS identifies events of default for which a Notice of Default (or Notice of Termination) is issued. Events of Default for which a Notice of Default (Agreement Terminated) may be issued include when an FFI:
- Fails to complete and submit a required FATCA certification by its due date.
- Indicates that it is unable to complete and submit a required certification.
- Indicates it is not required to submit a certification, contrary to the requirement indicated by their FATCA classification, country/jurisdiction of tax residence, or registration of any branches or sponsored entities for which the Financial Institution (FI) needs to certify.
- Completes and submits a certification that has a “failure to certify” result.
If an FFI fails to remediate its event of default, IRS terminates its FATCA registration and its GIIN is removed from the FFI List
On April 7, 2020, the IRS released the Procedures for FATCA Certification Event of Default (EOD) Notices: Agreement Terminated Registration Status. The Procedures explain that if an FFI’s registration status is in “Agreement Terminated” status, it is due to the IRS identifying an issue with the registration.
The FFI will need to have its GIIN reinstated
When an FFI requires its GIIN to be reinstated, it must contact the Foreign Payments Practice (FPP), by mail or email, to request reinstatement.
The FFI must:
- Make a written request for the GIIN to be reinstated.
- Submit the applicable qualified certification(s) through the online registration system.
- Provide detailed explanation why it was not compliant with its FATCA certification obligations within the certification submission.
- Provide a remediation plan.
The Remediation Plan
The FFI must submit a remediation plan that includes:
- explanation of the event(s) of default
- reason for the event(s) of default
- steps that have or will be taken to remediate the event(s) of default
- steps that have or will be taken to prevent such event(s) of default from occurring in the future
Consult with your FATCA Compliance Expert
Although the IRS may consider an FFI’s “good faith efforts” to comply with its rules, regulations, and requirements for Chapter 4 compliance when reviewing a Remediation plan, compliance failures could lead to a reinstatement request being denied. FFIs ought to maintain FATCA compliance on an on-going basis.
