SECTION 11. DRAFTING

INFORMATION

The principal author of this Notice is Patrick S. Kirwan of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this Notice contact Mr. Kirwan at (202) 622–3110 (not a toll-free call).

FFI agreement for Participating FFI and Reporting Model 2 FFI

Notice 2013–69

SECTION I. Purpose .

This notice provides guidance to foreign financial institutions (FFIs) entering into an FFI agreement with the Internal Revenue Service (IRS) under section 1471(b) of the Internal Revenue Code and § 1.1471–4 of the Treasury Regulations ¹

(the FFI agreement) to be treated as participating FFIs. This notice also provides guidance to FFIs and branches of FFIs treated as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA) (reporting Model 2 FFIs) on complying with the terms of an FFI agreement, as modified by the IGA.

Section II of this notice provides background on the statutory and regulatory requirements for FFIs to be exempt from withholding under chapter 4 of the Internal Revenue Code (Code). Section III of this notice provides a description of the general responsibilities of participating FFIs and reporting Model 2 FFIs and some of the intended updates to the regulations under chapters 4 and 61 and related forms. Section IV of this notice de

1Unless otherwise provided, all citations in this notice and the draft FFI agreement are to the Internal Revenue Code of 1986 and to the income tax regulations thereunder.

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scribes the procedures for FFIs to register for participating FFI or reporting Model 2 FFI status.

Section V of this notice provides the draft FFI agreement, which substantially incorporates the provisions set forth in §1.1471–4. The FFI agreement will be finalized by December 31, 2013.

SECTION II. Background and Scope.

.01 Background . On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010, Pub. L. 111–147 (H.R. 2847) (the Act) was enacted into law. Section 501(a) of the Act added chapter 4 (sections 1471–1474) to Subtitle A of the Code. Section 1471(a) generally requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an FFI, unless the FFI has an agreement requiring such FFI to satisfy the obligations specified in section 1471(b). An FFI that has entered into, and has in effect with the IRS, an FFI agreement is treated as a participating FFI and is not subject to withholding under section 1471.

On January 28, 2013, the Treasury Department and the IRS issued final regulations under chapter 4 (sections 1471– 1474) in T.D. 9610 (78 FR 5874). The general requirements of an FFI agreement are described in §1.1471–4, which provides the substantive requirements applicable to a participating FFI under the FFI agreement. The withholding, due diligence, reporting of U.S. accounts, and expanded affiliate group requirements of a participating FFI are described in §1.1471–4(a) through (e). A participating FFI’s procedures for complying with the FFI agreement, remediating an event of default, addressing legal prohibitions against reporting U.S. accounts or withholding, and filing refund claims for account holders are described in §1.1471– 4(f) through (i). The draft FFI agreement provided in section V of this notice incorporates the requirements in §1.1471–4.

In cases in which foreign law would prevent an FFI from complying with the terms of an FFI agreement, the Treasury Department has collaborated with other governments to develop two alternative model intergovernmental agreements (IGAs) that facilitate FATCA implementation and further reduce burdens on FFIs

in partner jurisdictions. Under a Model 1 IGA, reporting financial institutions under an applicable Model 1 IGA (reporting Model 1 FFIs) would satisfy their chapter 4 requirements by reporting specified information about U.S. accounts to their government, followed by the automatic exchange of that information on a government-to-government basis with the United States. Under a Model 2 IGA, reporting Model 2 FFIs would report specified information about U.S. accounts directly to the IRS in a manner consistent with the final regulations (as modified by the applicable Model 2 IGA), supplemented by a government-to-government exchange of information on request. Accordingly, an FFI, or branch of an FFI, that is a reporting Model 2 FFI will apply §1.1471–4, as well as the terms of the FFI agreement, as modified by the applicable Model 2 IGA.

.02 Covered Entities . An FFI that has one or more branches (including its home office or a U.S. branch) that can comply with the terms of the FFI agreement is eligible to enter into an FFI agreement. A branch of such an FFI that cannot, under the laws of the jurisdiction in which such branch is located, satisfy all of the terms of the FFI agreement will be treated as a limited branch (as defined in the FFI agreement) and will be subject to withholding under section 1471 as a nonparticipating FFI. A reporting Model 1 or 2 FFI that has a branch located outside of a Model 1 or 2 IGA jurisdiction may enter into an FFI agreement with respect to such branch in order for the branch to be treated as a participating FFI.

A reporting Model 2 FFI that registers with the IRS to obtain a global intermediary identification number (GIIN) and complies with the terms of the FFI agreement, as modified by the applicable Model 2 IGA, will be treated as complying with the requirements of, and not subject to withholding under, section 1471. The FFI agreement provided in section V of this notice incorporates the modifications to the terms of the FFI agreement that are applicable to a reporting Model 2 FFI.

The qualified intermediary (QI), withholding foreign partnership (WP), and withholding foreign trust (WT) agreements are being modified to address new requirements under chapter 4 in addition

to chapter 3, and these requirements will be incorporated into all QI, WP, and WT agreements that are in effect on or after June 30, 2014. The updated QI agreement will incorporate by reference the requirements of the FFI agreement (including the modifications to the terms of the FFI agreement that are applicable to a reporting Model 2 FFI) and shall apply to any foreign branch of the QI that is treated as a participating FFI or reporting Model 2 FFI. In the case of an FFI that is a participating FFI or reporting Model 2 FFI and is also a WP or WT, the updated WP or WT agreement, as applicable, will incorporate by reference the requirements of the FFI agreement (including the modifications to the terms of the FFI agreement that are applicable to a reporting Model 2 FFI).

In general, the FFI agreement does not apply to a reporting Model 1 FFI, or any branch of such an FFI, unless the reporting Model 1 FFI has a branch located outside of a Model 1 IGA jurisdiction that is treated as a participating FFI or reporting Model 2 FFI. In such a case, the terms of an FFI agreement apply to the operations of the branch treated as a participating FFI or reporting Model 2 FFI.

SECTION III. General Responsibilities and Related Updates to Regulations and Forms.

.01 General Responsibilities . (A) Participating FFIs . A participating FFI agrees to satisfy the obligations as generally described in this section III(01) and as further described in the FFI agreement. Pursuant to section 1471(b) and §1.1471–4, a participating FFI must comply with certain due diligence, reporting, and other requirements with respect to its financial accounts. It must also withhold and deposit tax with respect to withholdable payments made to recalcitrant account holders (as defined in § 1.1471– 5(g)) and nonparticipating FFIs (as defined in § 1.1471–1(b)(75)). A participating FFI is also required to verify its compliance with the requirements of the FFI agreement by periodically certifying to the IRS about its satisfaction of the requirements. For an FFI to maintain its status as a participating FFI, the FFI agreement requires that each member of the FFI group other than an exempt ben

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eficial owner maintains one of the following chapter 4 statuses: participating FFI (including a reporting Model 2 FFI), limited FFI, registered deemed-compliant FFI (including a reporting Model 1 FFI), or nonreporting Model 1 or 2 FFI.

(B) Reporting Model 2 FFIs . Unless modified by the terms of an applicable Model 2 IGA, a reporting Model 2 FFI must comply with the terms of the FFI agreement by fulfilling the responsibilities of a participating FFI provided in the FFI agreement (as generally described in section III(01)(A) of this notice), which includes, for example, the requirement to withhold on withholdable payments made to recalcitrant account holders and nonparticipating FFIs. The FFI agreement incorporates into each relevant section of the FFI agreement the modifications that apply to a reporting Model 2 FFI under the applicable Model 2 IGA, which include, for example, the suspension of withholding on non-consenting U.S. accounts. Therefore, in the absence of any modification to the terms of the FFI agreement for a reporting Model 2 FFI, a reporting Model 2 FFI may substitute “reporting Model 2 FFI” with the term “participating FFI” to determine its requirements to comply with the FFI agreement.

.02 Related Updates to Regulations . (A) Coordination with Chapter 61 (Form 1099 Reporting). The Treasury Department and the IRS intend to issue regulations under chapter 61 to provide that a payor other than a U.S. payor or U.S. middleman as defined in §1.6049–5(c)(5) (i.e., a non-U.S. payor) that is a participating FFI (including a reporting Model 2 FFI) or reporting Model 1 FFI will satisfy its reporting obligations under chapter 61 with respect to a U.S. payee (or presumed U.S. payee) that is a non-exempt recipient if such FFI reports such account holder pursuant to the FFI agreement or the applicable Model 1 IGA (including if the FFI reports an account, such as a depository account with a balance or value that does not exceed $50,000, as a U.S. account). Notwithstanding the preceding sentence, an FFI is required to report on Form 1099 to the extent the FFI is required to apply backup withholding to the payment.

(B) Coordination with Section 3406 (Backup Withholding). The Treasury Department and the IRS intend to issue regulations to provide that withholding

under section 3406 (backup withholding) will not apply to a reportable payment if a participating FFI (including a reporting Model 2 FFI) has withheld on the payment under §1.1471–4(b). A reportable payment that is not subject to withholding under chapter 4 remains subject to withholding under section 3406. Alternatively, a participating FFI may elect to satisfy its withholding obligations under §1.1471– 4(b) with respect to accounts held by recalcitrant account holders that are known U.S. persons by withholding pursuant to section 3406 at the backup withholding rate. For example, Custodian A, a reporting Model 2 FFI that is also a nonqualified intermediary and non-U.S. payor, receives a reportable payment subject to backup withholding under section 3406 as an intermediary on behalf of its account holder, X. The reportable payment is also a withholdable payment under chapter 4. X, a known U.S. person, refuses to provide consent for Custodian A to report the account as a specified U.S. account. Therefore, Custodian A reports X’s account as a non-consenting U.S. account and does not have to withhold on the account pursuant to the terms of the applicable Model 2 IGA. Even though Custodian A is not required to withhold on the withholdable payment made to the account under §1.1471–4(b) as modified by the applicable Model 2 IGA, Custodian A must, however, provide its withholding agent with sufficient information for such agent to backup withhold and report on the reportable payment to the extent required under §31.3406(g)–1(e). If, later, the conditions under the applicable Model 2 IGA for suspending withholding are not met, and Custodian A is required to start withholding on withholdable payments made to X as a recalcitrant account holder, Custodian A may elect to continue to backup withhold on reportable payments made to X. Such backup withholding will satisfy the obligation that Custodian A would otherwise have to withhold on withholdable payments at the 30-percent rate under §1.1471–4(b), as modified by the applicable Model 2 IGA. If Custodian A does not elect to apply section 3406 backup withholding, it must withhold on withholdable payments made to X under §1.1471– 4(b) as modified under the applicable Model 2 IGA, and such withholding will

satisfy its obligations to backup withhold under section 3406 with respect to such payments. Custodian A is still required to backup withhold under section 3406, however, to the extent a reportable payment that is not a withholdable payment (for example, broker proceeds paid inside the U.S. by a non-U.S. payor) is made to X.

(C) Transitional Reporting of For- eign Reportable Amounts Paid to Non- participating FFIs. The Treasury Department and the IRS intend to modify the transitional reporting requirements under the chapter 4 regulations for calendar years 2015 and 2016 with respect to payments of foreign reportable amounts made to nonparticipating FFIs. The current rules provide that a participating FFI is required to report the aggregate amount of foreign reportable amounts paid to each payee that is a nonparticipating FFI, even where such payments are not associated with a financial account. The modified rules will provide that a participating FFI is only required to report foreign reportable amounts paid with respect to a financial account that it maintains for a nonparticipating FFI. Such reporting will be required on Form 8966 instead of Form 1042-S. Additionally, a participating FFI will be permitted to report all payments made to the account if it does not want to distinguish foreign reportable amounts from other amounts paid to the account. The modified rules will further provide that if the participating FFI is prohibited under domestic law from reporting on a specific payee basis without consent from the nonparticipating FFI account holder, and the participating FFI is unable to obtain consent, the participating FFI may report the aggregate number of accounts held by all such nonparticipating FFIs and the aggregate amount of foreign reportable amounts paid to such accounts.

(D) Direct Reporting NFFEs or Sponsored Direct Reporting NFFEs. The Treasury Department and the IRS intend to issue regulations under chapter 4 to provide that a passive nonfinancial foreign entity (NFFE) will not include an NFFE that is a direct reporting NFFE or sponsored direct reporting NFFE. A direct reporting NFFE will mean an NFFE that elects to report on Form 8966 directly to the IRS certain information about its direct or indirect substantial U.S. owners, in

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lieu of providing such information to withholding agents or participating FFIs with which the NFFE holds a financial account. The chapter 4 regulations will be modified to provide that a direct reporting NFFE will be treated as an excepted NFFE. A direct reporting NFFE will be required to register with the IRS to obtain a GIIN and to agree to comply with the provisions to be provided in the modified chapter 4 regulations on reporting information about its substantial U.S. owners directly to the IRS on Form 8966. Instructions to the FATCA registration website will be modified to provide instructions to direct reporting NFFEs on how to register. In general, withholding agents and participating FFIs will identify and document a direct reporting NFFE in a manner similar to how withholding agents and participating FFIs will document a participating FFI, including by verifying that the GIIN of the direct reporting NFFE is listed on the IRS FFI List. Notwithstanding that a direct reporting NFFE will document itself to withholding agents and participating FFIs in a manner similar to a participating FFI, it will not be treated as a participating FFI and will not enter into an FFI agreement. Therefore, since the definition of a passive NFFE will be updated to exclude a direct reporting NFFE, an account held by a direct reporting NFFE will not be treated as a U.S. account and will not be reported by a participating FFI with which the direct reporting NFFE has a financial account to the IRS. The Treasury Department and the IRS intend to modify the regulations under chapter 4 to allow an entity to sponsor one or more direct reporting NFFEs (sponsored direct reporting NFFEs), which will require the sponsoring entity to report on Form 8966 directly to the IRS (on the sponsored direct reporting NFFE’s behalf) information about each sponsored direct reporting NFFE’s direct or indirect substantial U.S. owners.

(E) NFFEs that are QIs, WPs, and WTs. The Treasury Department and the IRS intend to modify the chapter 4 regulations to provide that a passive NFFE does not include an NFFE that is acting as a QI or that is a WP or WT. An NFFE that is acting as a QI and receiving a withholdable payment on behalf of a passive NFFE will be required pursuant to the updated QI agreement to report directly to the IRS information about the passive NFFE and

its substantial U.S. owners, in addition to the QI’s other obligations as a withholding agent under chapters 3 and 4. An NFFE that is a WP or WT will be required pursuant to the updated WP or WT agreement, as applicable, to report directly to the IRS information about its direct or indirect substantial U.S. owners, in addition to its other obligations as a withholding agent under chapters 3 and 4.

(F) Section 953(d) Entities. The Treasury Department and the IRS intend to modify the definition of U.S. person in the chapter 4 regulations to include a foreign insurance company that is not a specified insurance company and that elects pursuant to section 953(d) to be subject to U.S. income tax as if it were a U.S. insurance company.

.03 Update to Relevant Forms . The IRS intends to update all relevant IRS forms to the extent necessary to incorporate and implement the changes described above in this section III. This includes, for example, Form W-8BEN-E which has been posted as a draft on the IRS.gov website and does not currently include a chapter 4 status for direct reporting NFFEs.

SECTION IV. Registration for Participating FFIs and Reporting Model 2 FFIs.

.01 In General . An FFI may register on Form 8957, Foreign Account Tax Compli- ance Act (FATCA) Registration, via the FATCA registration website available at http://www.irs.gov/fatca to enter into an FFI agreement on behalf of its branches (including its home office) so that each of such branches may be treated as a participating FFI. A reporting Model 2 FFI may also register on the FATCA registration website, on behalf of one or more of its branches (including its home office), to obtain a GIIN and to agree to comply with the terms of an FFI agreement, as modified by an applicable Model 2 IGA. See the FATCA registration user guide for more information about the FATCA registration process. Each branch of a participating FFI or reporting Model 2 FFI that is registered, other than a limited branch, will be issued a GIIN to be used in connection with complying with the FFI agreement and to identify itself to withholding agents.

.02 Registration for Sponsoring Enti- ties . An entity that agrees to perform the due diligence, withholding, and reporting

obligations of one or more FFIs pursuant to §1.1471–5(f)(1)(i)(F) or §1.1471– 5(f)(2)(iii) may register with the IRS via the FATCA registration website to be treated as a sponsoring entity. If a sponsoring entity also seeks to obtain status as a participating FFI or reporting Model 2 FFI, the entity must separately register for participating FFI or reporting Model 2 FFI status and may do so via the FATCA registration website. The IRS intends to update the FATCA registration user guide to the FATCA registration website to provide information on the registration process for sponsored entities.

SECTION V. Draft FFI Agreement.

The text of the draft FFI agreement is set forth below. The IRS will not provide signed copies of the FFI agreement.