In January 2013, the Internal Revenue Service (IRS) published final regulations under the Foreign Account Tax Compliance Act (FATCA).  FATCA is intended to make it more difficult for U.S. taxpayers to conceal assets held in offshore accounts.  In order to obtain information about offshore accounts, FATCA imposes significant reporting obligations on both non-U.S. foreign financial institutions (FFIs) and U.S. taxpayers holding foreign financial accounts.  A non-U.S. retirement plan is generally included within the definition of an FFI, meaning that, absent an exemption, it is required to register and disclose information about its U.S. taxpayer-participants.  A non-exempt FFI that fails to comply with FATCA is subject to immediate 30 percent withholding on interest and dividend payments from U.S. stocks and bonds and, beginning in 2017, on the sales proceeds of such investments.  If a non-U.S. retirement plan is an FFI, it must document its exemption from FATCA by July 1, 2014, or be subject to the withholding described above.   

In March of this year, the IRS issued the final version of Form W-8BEN-E, which allows certain non-U.S. retirement plans to claim exemption from the reporting and withholding requirements of FATCA.  In order to be exempt from FATCA, a plan is required to document its exempt status on Form W-8BEN-E.  It is prudent for plan sponsors to take steps to ensure a complete Form W-8BEN-E is provided  to any person or entity that will be distributing amounts to a non-U.S. plan that might by subject to FATCA withholding.   

Following the release of Form W-8BEN-E, the IRS published IRS Notice 2014-33 (the Notice) announcing that it will treat calendar years 2014 and 2015 as a transition period for FATCA compliance.  Pursuant to the Notice, taxpayers must ensure good-faith compliance with the due diligence, reporting and withholding provisions of FATCA, including the creation and documentation of a FATCA compliance policy. 

The final Form W-8BEN-E contains several revisions to Part XV of the draft form, pertaining to exempt retirement plans.  In particular, the final form is revised from the July 2013 draft to include several references to retirement and pension accounts and other retirement funds described in an applicable Model 1 or Model 2 intergovernmental agreement (IGA).  The U.S. Department of the Treasury worked with several countries to develop two model IGAs that allow an FFI to report information about financial accounts held by U.S. taxpayers directly to its own governmental authority, which then either provides the information to the United States (Model 1 IGA) or allows the signing countries’ FFIs to report directly to the Treasury (Model 2 IGA).  The model IGAs are generally reciprocal in nature, meaning that the United States would provide the same type of information to the signing country about financial accounts held in the United States by the signing country’s taxpayers. 

Importantly, the final form retains the exemptions for broad participation retirement plans, treaty-qualified retirement plans, 401(a)-type plans and investment vehicles designed exclusively for retirement plans.  However, the IRS has yet to publish the instructions corresponding to the final Form W-8BEN-E.  The lack of instructions makes it difficult to complete the form properly, given the ambiguities inherent in completing the form.  In the meantime, FFIs should make good faith efforts to comply with the requirements of FATCA in accordance with the Notice.  We are hopeful the IRS will issue instructions shortly, in order to provide further clarification of these complicated issues.  Before then, it is important for plan sponsors to confirm that their non-U.S. retirement plans are exempt from FATCA.