International Financial Law Prof Blog

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

Monday, February 23, 2015

February FATCA Updates: GIINs and IDES

GIIN Lists Analysis: June 2014 through February 2015

Since the publication of the U.S. Treasury’s original GIIN list 1 June 2014, Haydon Perryman (FATCA systems designer for several tier 1 financial institutions) and I (primary author, Lexis Guide to FATCA Compliance) have been analyzing on a monthly basis the list that the USA provides of “approved FFIs” (foreign financial institutions).  On 1 February, the IRS published its second 2015 FATCA GIIN list of “approved FFIs” (a list of the financial firms that have registered on the IRS FATCA portal).  

FATCA IGA Scenarios

GIINs

Jurisdictions

Model 1A IGA

 95,278

 95

Model 1B IGA

 33,855

 3

Model 2 IGA

 17,900

 14

No IGA

 5,871

 131

US

 828

 1

US Territories

 65

 6

 

 

 

Total

 153,797

 250

GIIN List (2014/2015)         Total Registrations 

June                             77,354

July                             82,994

August                        95,239

September                  99,861

October                       104,344

November                   116,104

December                    122,881

January                        147,043  

February                      153,797

The original GIIN list released June 2, 2014 contained 77,353 registrations from 205 countries and jurisdictions.[1]  Thus, it required eight months to double the initial FFI registration number.  

Of those June registrations, 74 percent hailed from Model 1 IGAs that had been either signed or recognized by the IRS as agreed in substance.  Approximately 20 percent of the initial FFIs registrations were Cayman Islands firms, and 37 percent of the total from the UK and its Crown dependencies and overseas territories.  

As of 1 February 2015, Cayman Islands, with 28,045, remains the clear FATCA FFI registration leader, which given its financial sector size relative to Germany (3,826 FFIs), Japan (3,627) and China (1,000), is quite surprising. 

On July 1, 2014 the IRS released its second GIIN list. This list contained a disappointing additional 10,000 registrations, bringing the total to 87,993.[2]  82,994 of this total, approximately 95 percent, were from the 98 countries with which, as of July 2014, the IRS signed IGAs.  Only five percent (4,318) of the registrations derived from the remaining non-IGA countries upon which Chapter 4 withholding went into effect on the day of the list’s publication.   It is fair to conclude that as of that time, FATCA registration had not caught on globally.

After the first month of FATCA withholding that began 1 July, the August 2014 GIIN list experienced an unexpected decline in growth of registrations, with only 7,246 additional entities bringing the total registration to 95,239.[3]  Yet, as of this third GIIN list, the IRS increased the amount of IGAs with foreign countries to 101, from which 89,718 institutions (94 percent) registered (even though withholding was suppressed until January 1, 2015).[4]  Thus, FATCA withholding was stalled until January 1, 2015.  Only 4,801 (approximately five percent) registered from the 143 countries and territories without an IGA, leaving multitudes of their FFIs exposed to the 30% withholding. 

September’s GIIN list continued the downward trend in FFI registration growth and did not reach a 100,000 registration mark (99,861).[5]  It was not until after six months of the open registration window (the October 1, 2014 GIIN list) that FFI registration breached 100,000 (104,344 total). 

The November 2014 list saw a jump in registration, led by a significant surge of United Kingdom financial firms, achieving a global total of 116,104 FFIs and branch registrations.[6]  As of November, 43 percent of all registered FFIs were from the U.K., her Crown Dependencies, and Overseas Territories. The December GIIN list released grew by another 6,000 global registrations to 122,881, of which only 6,094 were from non-IGA countries.  Global FFI Registration as of 1 February 2015 stands at 153,797.

153,797 FFI registrations must be viewed in the context that the IRS stated that “… the full FFI list is expected to be less than 500,000 records”.[7]  Moreover, based on upon industry discussions and a review of industry literature of financial institution compliance officers, the Big 4, and upon other revenue authority estimates such as the U.K., it is reasonable to state that more than 500,000 entities are required to register with the IRS, closer to 800,000.

Thus, as of February 2015, it is likely that only an amount of 20 percent to 30 percent of potential FFIs have registered with the IRS to obtain a GIIN.  The primary reason for lack of FFI registrations appears to be one based upon ignorance of the requirement.  Based upon interviews, industry polls, and workshops, many countries’ financial communities still do not have an understanding of FATCA.  As withholding is imposed upon more types of payments from U.S. sources that are currently not included as “withholdable payments”, such as the full amount of a bond redemption, upon the sale price of equities, and upon the sale price of immovables, then the FFIs currently unaware of FATCA will rush to register for a GIIN and move to become compliant with the data collection and reporting requirements.

NAFTA FFI Registration

The initial June 1 GIIN list contained 2,264 FFIs registered from Canada and Mexico at 418.  By November 1, 2014 NAFTA has barely inched forward.  Canada's November 1 GIIN list included an additional 143 registrations, at least breaching the 3,000 mark (3,043, where it remained as of the December list) but with a sizable jump to 4,107 for the 1 February 2015 list.[8]  Mexico, on the other hand, has a lethargic 639 FFI registrations as of 1 February. 

BRIC FFI Registration

BRIC FATCA registration remains disappointing.  For the initial June list, Brazil led the BRIC countries with 2,258 FFI registrations, followed by Russia (514), India (246) with China only having 211.  Based upon the most recent data, the BRIC countries continue to shrug off FATCA.  India and China compete for FATCA lethargy with only 1,000 current China FFIs registered but still more than India that has only 698.  Brazil experienced the largest amount of registration jump to 5,082 as of February 2015, whereas Russia registered 1,072, similar to China’s effort. 

European Financial Center FII Registration

For the first GIIN list, Switzerland had 4,040 registered FFIs, Luxembourg had 3,560, Austria 2,978, Guernsey 2,395, Jersey 1,618, Isle of Man 312, Lichtenstein 239 and Gibraltar only 96.  As of February 2015, Gibraltar reached 2,043, Switzerland increased to 4,747, Luxembourg 7,023, Austria 3,051, Guernsey 3,419, Jersey 4,088, Isle of Man 970, and Lichtenstein 828.

Major OECD Countries FFI Registration

The major OECD trade partners of the U.S. such as France which entered the June GIIN list with only 2,290 registrations have not yet seen robust FATCA registration compliance relative to the size of their financial services industry, but in general experienced significant jumps in the last month of the year for GIIN registrants.  

By the end of 2014, France reached 3,730 (3,755 as of 1 February), Germany went from 2,254 to 3,751 (currently 3,826), Ireland 1,756 to 3,661 (currently 3,764), Netherlands 2,053 to 3,103 (currently 3,204) and Australia 1,864 to 3,067 (currently 3,145).

Caribbean and Atlantic Financial Center FFI Registration

The Cayman Islands remain the global FATCA compliance registration leader with 28,045 FFIs on the GIIN list, 6,000 more registered FFIs than the next country for GIINs, U.K. with 22,022. The June 2014 GIIN list included 1,837 BVI FFI registrations, now at 4,904.  Bahamas has increased from 610 to 906, Bermuda 1,242 to 2,102 and Panama 450 to 795.

FATCA International Data Exchange Services (IDES) Updates

The Internal Revenue Service announces the opening of the International Data Exchange Service (IDES) for enrollment.  Financial institutions and host country tax authorities will use IDES to securely send their information reports on financial accounts held by U.S. persons to the IRS under the Foreign Account Tax Compliance Act (FATCA) or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.

More than 153,797 financial institutions have registered (see analysis of all GIIN registrations by country, trade group, IGA and EAG here) through the IRS FATCA Registration System. The U.S. has more than 110 IGAs, either signed or agreed in substance. Financial institutions and host country tax authorities will use IDES to provide the IRS information reports on financial accounts held by U.S. persons.

Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.

Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information. 

Host country tax authorities in Model 2 IGA jurisdictions and financial institutions are encouraged to begin the enrollment process well in advance of their reporting deadline. To begin transmitting information in IDES, a financial institution or tax authority will need to first obtain a digital certificate. Digital certificates bind digital information to physical identities and provide data integrity. IDES stores each user’s public key and related digital certificate. All IDES enrollees (including host country tax authorities) must obtain a proper digital certificate in order to enroll; there is a list of approved Certificate Authorities available (see previous post).

For host country tax authorities in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. Financial institutions will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list. The online address for IDES enrollment can be found here.

IDES runs on all major browsers, including Chrome, Internet Explorer, Safari, and Firefox and will support application-to-application exchanges through the SFTP transmission protocol enabling a wide variety of users to interact with IDES without building additional infrastructure to support transmission.

The FATCA IDES IDES User Guide Publication 5190 was updated in February 2015 and is available online.  This guide is intended to serve as a tool for FIs and Host Country Tax Authorities (HCTAs) who enroll in the International Data Exchange Service (IDES) to transmit FATCA data. The document assumes that the reader is familiar with the FATCA regulations and is experienced with extensible markup language (XML) and schema technology.

The main function of IDES is to provide authorized users with secure exchange services for FATCA data transmissions, with the additional protection of a Public Key Infrastructure (PKI). The primary features of IDES are:

 Enrollment

 Certificate Management

 Account Management

 Secure Data Transmission

 Status of Data Transmission (Alerts and Notifications)

The IDES web application is a secure managed file transfer service that is available to both FIs and HCTAs to facilitate FATCA reporting. This reporting is provided for under U.S. Treasury Regulations, the FFI agreement, Tax Information Exchange Agreements (TIEAs), Intergovernmental Agreements (IGAs), and other guidance issued by the Treasury Department and the IRS that outlines how financial institutions will implement FATCA. The data collected through IDES will be incorporated into IRS compliance operations.

IDES is accessible to enrolled users over the Internet via Hypertext Transfer Protocol Secure (HTTPS) or Secure File Transfer Protocol (SFTP). IDES provides for an end-to-end controlled file transfer with enhanced monitoring and security features. The system only accepts encrypted electronic submissions, and will allow for the transmission of FATCA reporting in the approved FATCA XML Schema v1.1 (FATCA XML).

Authorized IDES users are either FIs or HCTAs. Each authorized user has limited access to the system based on the data flow model described in their agreement with the United States (for example, an IGA or an FFI agreement) or in Treasury regulations. Note that for many IDES users, the IRS is the only valid recipient for files. The table below provides additional information regarding user access based on agreement types.

The FATCA Metadata XML Schema v1.0 User Guide, Publication 5188 is now available online.  This guide is intended to serve as a tool for financial institutions (FIs) and Host Country Tax Authorities (HCTAs) who transmit data through the International Data Exchange Service (IDES). It explains how to prepare and validate the IDES metadata file used in FATCA reporting. The document assumes that the reader is familiar with the FATCA regulations and is experienced with extensible markup language (XML) and schema technology.

Metadata is a collection of data about the content and characteristics contained in the FATCA reporting files. It is used to ensure the data packets are correctly processed. IDES metadata files should never be encrypted. An authorized user should create and validate a metadata file using the FATCA Metadata XML Schema v1.0. An unencrypted metadata file must be included in the data packet (.ZIP). A metadata file can also be generated using a sender metadata template on the IDES Enrollment Site.

read about the Comparison of NAFTA, BRIC, EU and Caribbean of the 8 FATCA GIIN Lists (June 2014 -> January 2015)

The 3rd edition of Lexis' Guide to FATCA Compliance contains 1,200 pages of legal and compliance analysis – manageable over 54 chapters.  70 FATCA compliance experts from tier 1 institutions, former government officials, and professional firms have contributed to this robust compliance guide, filled with numerous practical examples and several chapters written specifically for the non-legal, compliance operations officer.  No filler pages of publicly available documents and regurgitated regulations – it’s all beef.  See the Lexis website to order a copy of this 3rd edition.


[7] IRS FFI List FAQs, FFI List Q7. Available at http://www.irs.gov/Businesses/Corporations/IRS-FFI-List-FAQs (accessed February 1, 2015).

https://lawprofessors.typepad.com/intfinlaw/2015/02/february-fatca-updates-giins-and-ides.html

| Permalink

Comments

Post a comment