International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, September 5, 2014

Follow Up on FATCA's Soft GIIN Registration Numbers - or - Why Isn't Every FFI Excited to Register WIth the IRS?

Think my response to Michael Deblis' FATCA post may interest my readers - Michael's article:

The actual response to Michael Deblis' Tax Connections post is that he "should" be correct.  Yet, I have now lost three 'should' bets (July, Aug and Sept) regarding the number of registrants.

What I thought would happen?

My educated 'guess' back in March put the number of GIIN registrants at close to 200,000 by September (before the 4Q of 2014).  Moreover, I calculated with some precision, and understanding of the industry, that the UK would have 10,000 FFI GIINs registered, while France and Germany would each have 5,000.  I looked at numbers of licensed banks, registered investment funds and estaimtes of non-registered funds such as private partnerships, estimates of trust companies and fiduciary firms.  I also estimated that registration compliance would be over 50% for September for these three countries.

Back in April and May I was still of the opinion that only 300,000 FFIs, by that FATCA definition (after exemptions by regulation and by IGA, after sponsored entities), would need to actually register with the IRS from all 250 countries and territories.

Then what happened?

However, I have been later convinced, in talking with high level bank and financial institution compliance officers in charge of FATCA, that the number is north of 500,000. How far North? There is much disagreement.  I think that my discussions with Haydon Perryman, the head of FATCA compliance of Strevus (and a main player in organizing FATCA compliance at High Street Tier 1 institutions), have been most enlightening for my sometimes myopic US perspective.  It is he, and Peter  Cotorceanu of UBS, who pushed me to understand the breadth of which entities are caught in the FFI definition.. 

How Many FFIs?

How many sponsored entities will there be? Will sponsored entities seek a GIIN anyway (I have heard that this may be the case)?

For countries without a USA DTA, will FFIs simply divest because collecting all the W8s / equivalents is costs more than the relative safety of the T-bill? Some investment professionals say the precipice of divestment is the quarter leading up to gross proceeds withholding. Others say that gross proceeds withholding is the real FFI registration deadline.

Compliance and Forms?

And anyway, with the probably adoption of the OECD's Common Reporting Standards, whether it's a W8 or an OECD equivalent, all institutions investing in the OECD (and likely BRIC) are going to be collecting tax information.  Haydon Perryman sent me PwC's interesting article on the friction of the US forms versus everyone else's (well, at least the UK's)  Until I see a Rev Proc blessing another form, it's still a W8 world. 

But along this argument, one potential for the foot dragging is that institutions are figuring out how to handle the back office complexities of collecting the required tax information for at least each country of investment/doing business in. It's not that they are protesting FATCA. It's just that FATCA is one piece of an increasingly complex data gathering, management and dissemination puzzle, along with the UK's requirements and its tax forms (the UK we know about), and how many other countries? And the OECD.

On the other hand, in 2003 I wrote a 900 page report about this exact same FATCA type issue. Same horror stories except then it was called the European Union Tax Savings directive. While compliance for the EU states' institutions, territories that were drug into it, and 3rd party states like Switzerland, may have been expensive, they survived. Capital flight from Switzerland and the Channel Islands to SIngapore was exactly as predicted. But the compliance was like a snowball rolling down a cliff. Most of the institutions came on-line only at the last moment.

What Will Happen?

Will October finally see the big jump? Probably not based on the decline of September's results. But just looking at the UK for a moment, the UK professional associations set an internal suggested best practice deadline of October 25th for GIIN registration. So the November list - I expect to see the UK registration to be higher than the Cayman Islands. The UK Revenue stated, after the IGA was signed, that 75,000 UK entities were still impacted (and I read that as most requiring registration). Cut the 75,000 in half - so at least 30,000 for UK November seems reasonable.

China, Brazil? They'll register in big numbers - on December 31st. I have read on other blogs that their institutions may roll their interest earning US investments into bonds or securities and hold out another year.  Automatic financial information exchange has reached inevitability.   So kicking and screaming they may come to the dinner table, but come they will.

free chapter download here —>   Number of Pages in PDF File: 58

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