FATCA and your businessForeign Account Tax Compliance ActJanuary 2012

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FATCA Withholding and Reporting Rules

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FATCA - an overview of the new US reporting requirements

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• FATCA = the "Foreign Account Tax Compliance Act" which was incorporated into the HIRE Act became law on 18 March 2010, FATCA provisions contained in Ss 1471 to 1474 and supplemented by IRS notices 2010-60, 2011-34 and 2011-53

• The goal of FATCA is to require non-US financial institutions and non-US entities owned by US persons to provide information to the IRS identifying US persons, their assets and income invested in non-US bank and securities accounts

• The Compliance Incentive: A NEW 30% withholding tax levied on "withholdable payments" made to non-participating (non FATCA compliant ) "foreign financial institutions" ("FFIs") and non financial foreign entities (NFFEs)

• "Withholdable payments" includes all US source FDAP (fixed or determinable, annual or periodical) and gross proceeds from the sale or disposition of any property of a type that can produce US source interest or dividends.

• Effective date for FDAP - 1 January 2014. For all other payments, 1 January 2015.

• FFI agreements need to be in place by 30 June 2013 to avoid withholding starting 1 January 2014.

FATCA overview

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• Withholdable Payments include US Source:

• Interest• Dividends• Rents• Salaries• Wages• Premiums• Annuities• Compensations• Other fixed, determinable, annual or periodical income ('FDAP') and • Gross proceeds from the sale of property that could

produce interest or dividends

Withholdable payment

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Section 1471(b) - 6 steps to comply with FATCA

• A Foreign Financial Institution (FFI) accepts deposits, holds financial assets for the account of others, or engages in the business of investing or trading securities, partnership interests or commodities

• Notice 2010-60 specifically defines FFIs to include:

• Foreign banks including saving and commercial banks, savings and loan associations, credit unions, building societies and other cooperative banking institutions

• Broker-dealers, clearing organisations, trust companies, insurance companies (dealing in products with investment element) and custodial banks

• Mutual funds, funds of funds (and other similar investments), exchange-traded funds, hedge funds, private equity and venture capital funds, other managed funds, commodity pools, and other investment vehicles

What is an FFI?

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NFFEs - Non Financial Foreign Entities (foreign entities that are not FFIs)

• Withhold 30% of gross payments to NFFEs unless the beneficial owner of the payment is the NFFE and the NFFE provides;

• certification that NFFE has no substantial US owner OR

• the name, address and TIN of each substantial US owner (10% or more, directly or indirectly)

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FFI Agreements - the cost of non-participation

US Withholding Agent - $100

NPFFI - $70

Compliant Accounts - $35

Recalcitrant Accounts - $35

IRS - $30

US Withholding Agent - $100 PFFI - $100

Compliant Accounts - $50

Recalcitrant Accounts - $35

IRS - $15

FFI Agreement not in place orfound to be non-compliant

FFI Agreement in place

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Section 1471(b) - 6 steps to comply with FATCA

• A participating FFI must enter into an agreement with the IRS to do all of the following:

• Identify its "US Accounts" including all its worldwide affiliates;• Comply with due diligence criteria to ensure that it has really identified its US

Accounts;• Annually report details about the US Accounts that it has found to the IRS;• Deduct and withhold 30% on withholdable payments made to "recalcitrant

account holders" or bad FFIs;(doesn’t have an FFI agreement )• Provide any follow-up information requested by the IRS with respect to the US

Accounts; and• Request a waiver of any foreign law preventing disclosure (e.g. privacy or bank

secrecy laws), and close the account if the waiver cant be obtained.

• The agreement is terminable by IRS for non compliance

The FFI Agreement Route

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IRS reporting

• Reporting to be made annually by FFI with "most direct payor relationship"

• New 30% withholding tax on 'withholdable payments' made to FFIs unless FFI agrees to report information to the IRS about each US account including:

• the name, address and TIN of each account holder who is a 'specified US person'

• the account number

• the account balance or value; and

• the gross receipts and gross withdrawals or payments from the account

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US person - worldwide taxation conceptUS account for an FFI

Individuals:• US Citizens• Lawful Permanent Residents (Green Card Test)• Substantial Presence Test

Entities:• Corporations - jurisdiction of incorporation• Partnerships - country of applicable partnership formation law• Trusts - Court and Control Test

Financial Account means any:• Depository account maintained by a financial institution• Custodial account maintained by a financial institution• Equity or debt interest in a financial institution (except those traded on established

securities market)

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How to find 'US persons'

• Accounts (aggregated across accounts under same owner) < $50,000 to be taken as non-US accounts

• FFIs can rely on electronically searchable existing systems for accounts over $50,000 unless search reveals US 'indicia'

• Documentation alone can never establish non-US status

• Subject to US 'indicia' test:• identification as US resident or citizen• US address• US 'care of' address• power of attorney with US address• standing instructions to transfer funds to a US account or directions received

from a US address

• Those not yet identified as US and >$500,000 undergo diligent review - searching for the above

Passthru payment percentage (PPP)

• Passthru payment = (WHP + N-WHP) x PPP• WHP - amount of payment that is a withholdable payment• N-WHP - amount of payment that is not a withholdable payment• Custodial (use custodian PPP) or other (use payor FFI)

• Most direct payor relationship

• PPP - proportion that US balance sheet assets make up of total

Americans treated unfairly -"…the FATCA legislation treats all Americans with overseas bank accounts as Criminals…" Source: Jackie Bugnion, director of American Citizens Abroad

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FATCA vs. QI

• IRS already looking at QI improvements (not just FATCA); eg are QI audits too predictable / routine?

• Increasing IRS audits of withholding agents and Form 1042 and 1042-S and Forms W-8 (series)

• QI Audit based approach

• FATCA - must report details to IRS

• However, it is expected that there will be efforts to align QI and FATCA reporting and withholding

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FATCA some problem areas

• Nominee arrangements

• US Persons

• Passthru payment percentage

• Payments attributable to withholdable amounts

• Groups / one or multiple FFI agreements?

• Cross-jurisdiction or entity organisation

• KYC

• Industry specific areas

$8.5 billion -the anticipated increase in Tax revenues over the next 10 years as a result of FATCASource: The Joint Committee on Taxation

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Industry specific areas: Private Banking & Investment/ Wealth Management

• Business decision: retreat from US assets? Cost benefit analysis on compliance cost vs. potential withholding cost? Changes minimum client size?

• Could being an FFI be a competitive advantage? (justifiable level of US asset exposure)

• Interaction with clients on increasing level of information requests

• Added complexity of trust, overseas and other structures. (indirect ownership and trust beneficiary status change frequently)

• How can/will this interact with QI withholding? (pool reporting differs from passthru percentage concept)

• Front line of compliance with CRM - information transfer & training?

• How will this be managed relative to competition time wise?

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Industry specific areas: Funds & Fund Management

• Will need to work with counterparties and distributors to ensure their compliance to limit FATCA tax leakage.

• Agree responsibility for identification and liability for recalcitrant tax

• Potential for duplicate reporting

• Is withdrawal from US asset exposure a realistic alternative?

• For umbrella funds, uncertain whether FATCA applies at umbrella or sub-fund level

• Restrictions on US investors may be solution but definition could be too wide to be practical and still requires IRS clearance and compliance

• Pass-thru Payment Percentage likely to be particularly complex

Industry specific areas: Funds & Fund Management

Foreign LP is FFI: a) receives withholdable payments b) payor of withholdable & passthru payments. If US investment company pays a dividend to Foreign LP:

• Is USCO making withholdable payment?• Is USCO a withholding agent?• Is Foreign LP receiving payment as an FFI?• Is Foreign LP participating or non-

participating?• If participating, has it verified all US

accounts? Reported? Been compliant with agreement? And all IRS Notices? Has it informed USCO of its status? If so, no withholding needed.

• If non-participating is it deemded compliant, exempt or recalcitrant?

• If non participating then USCO should withhold 30%

• What is the position of the Foreign Feeder?

Non-US Investors

US Investors

Recalcitrant Investors

Foreign tax exempt

investors

US Feeder

LP

Foreign LP (Master)

Foreign Feeder

US Investment Company (USCO)

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Industry specific areas: Banks

• Withdrawal from US unlikely - but could WHT be less than compliance?

• Entity by entity analysis necessary - how will this work with cross jurisdictional and cross entity business lines? Where do "clients" sit?

• Which entities may be exempt, NFFE, deemed compliant etc.

• How will the large number of account holders be contacted (and information extracted) in cost effective manner?

• Lack of guidance surrounding many elements including derivatives. Time frame too limited to not start process now

• How will retail banking, investment banking, custodial banking, broking, insurance etc. be compliant separately and co-ordinated? Reporting?

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Industry specific areas: Insurance

• Low touch business - Client identification and information gathering will be a new process, if even possible. Requires close working with agents and renegotiation of responsibilities. Overhaul of T&Csand IT systems?

• Legacy systems problematic following life market consolidation• Where, how and by whom the passthru percentage will be calculated?• Contravention of EU data laws? Do contracts allow closure?• Which parties to endure cost of withholding for recalcitrance?• Could some entities/businesses be deemed compliant?

Products Potentially in Scope

•Unit-linked and with profits investment plans and bonds

•Investment management•Pre-retirement pensions savings

Products Probably Out of Scope

•Employer sponsored pension schemes•Pensions in payment

Products Most Likely Out of Scope

•"Risk Contracts" - contracts with no cash values

•general insurance•reinsurance•term life policies

IRS Notice 2010-60: Detail in Appendix

Main Points:• Documentation • Identification• New vs Existing accounts• Persons vs Entities

IRS Notice 2011-34: Detail in Appendix

Main Points:• Updated identification guidance• Updated reporting responsibility guidance• "Private Banking" focus• Passthru payment percentage• Deemed compliance• Interaction with QI regime• Affiliated groups

FATCA - an overview of the associated impacts and risks

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Stages of evolution:

1. What is FATCA?

2. Wishful thinkers - 'No, they can't do that!'

3. Bridge crossers - 'We'll cross that bridge when we come to it!'

4. Eager anticipators - 'We're ready to start once it's published'

5. Gung-ho brigade - 'We're well underway!'

An evolution of understanding…

1 in 4 not aware of FATCA -"…26 per cent of financial institutions worldwide have little or no awareness of the Foreign Account Tax Compliance Act (FATCA)--despite the fact that the Act was passed in 2010…" Source: RBC Dexia Investor Services survey, September 2011

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• FATCA compliance is a broad-based operational, technology and business change programme that will be underpinned by detailed knowledge of US Tax Legislation

• FATCA shifts the onus of tax reporting and compliance onto the Financial Institutions. As a result, new processes and procedures will be required for identifying accounts, withholding, reporting and reconciliation requirements

• Compliance will be sought through rigorous client identification processes and those deemed not to be compliant will suffer 30 % withholding tax on all US source income or have their accounts closed

• FATCA will impact people, processes and technology with major changes expected in:• CRM (on-boarding, KYC, AML, etc)• Operations• Reference and static data management• Legal and compliance

• FATCA solutions will need to be future-proofed - foreign governments could emulate the US System

What FATCA means for you…

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Timelines

Assess Impact

• Analyse impact at client and product level

• Identify FFI affiliates affected by FATCA

• Review procedures and changes required for FATCA compliance

• Assess local level privacy laws vs. FATCA requirements

• Review data requirements

• Determine impact on Qualified Intermediary status

Design Solution

• Design processes and data used to identify US accounts

• Identify data fields that will make up IRS reports

• Develop passthru payments process

• Perform global gap analysis on new processes

Implement Plan

• Implement defined methodology used by on-boarding staff to conduct a "due diligence" of customers and identify US status indicia

• Implement controls and processes to address country-specific legal barriers to data gathering and transfer

• Roll-out new processes and procedures

• Update reporting systems and processes

Manage Controls

• Maintain "due diligence" of accounts

• Reviews and alerts to maintain compliance

• Demonstrate FATCA compliance

• Report to IRS

Assess ImpactDesign Solution

Implement PlanManage Controls

2011 2012 2015

Release of Guidance Notice

2011-53

2013 2014

FFI Agreement deadline

Withholding on US dividends and interest

effective date

Withholding on all payments and gross

proceeds effective date

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Impact on institutions

People Process Technology

Client Relationship Management

• FATCA implementation programme governance

• Senior stakeholder buy-in• Identifying key Subject

Matter Experts (SMEs) across organisation

• Potential new hires to cover increased workloads

• On-going education and training to ensure coverage and:• detailed understanding

of IRS requirements• impact on roles and

responsibilities

• New business as usual processes around the management of client data

• New KYC, AML, on-boarding (COBAM) and potential off-boarding processes

• New control processes and procedures around client management and governance of client data

• New procedures for cyclical and ad-hoc reporting

• Your product offerings are FATCA compliant

• GL/ CRM tool solution to ensure correct data is captured and can be utilised

• New controls in place to ensure consistency and validity of data

• New customisable ad-hoc and cyclical reporting capabilities

• System capabilities to apply correct levels of withholding

• Client reference data and reporting on transactions needs to be controlled and audited

Operations

Reference/ Static Data

Legal and Compliance

Tax

FATCA compliance is a broad-based operational, technology and business project underpinned by detailed knowledge of US Tax Legislation

32% -of businesses expect some level of change to the structure of their product range as a result of FATCASource: "FATCA and the funds industry" - KPMG Report, June 2011

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Banks fear FATCA raises risks"…Financial Institutions across the globe could experience operational upheaval and enormous compliance costs, alongside potential reputational and systemic issues…"Source: Operational Risk & Regulation, September 26, 2011

Risks and issues

Strategic

• What are the overall costs of compliance?• What is the benefit/ risk of opting out of FATCA?• Can you achieve FFI compliance by 30 June 2013?• Is US asset exposure a key part of the business strategy?• Withdrawal from US is unlikely. Could the cost of withholding tax be less than compliance?• How will your different business groups be compliant, separately or co-ordinated? What

about reporting, country, entity or business group level?

Business

• Will cost of becoming FATCA compliant be recoverable?• You will need to gather more detailed information from all your clients. Is this possible and

cost effective? • Relationships with clients could become strained. How will this risk be managed?

Operational

• How will client information be collected and managed across different entities and jurisdictions?

• What controls will be implemented to prevent inadvertent withholding tax being applied?• New activities and reporting will be driven by client and asset designation. What upgrades

will your systems require?• Can your current KYC and AML processes and systems correctly identify US persons under

FATCA (e.g. those with more than one passport, expired green card holders, substantial ownership (>10%), etc.)?

• How will the large number of account holders be contacted (and information extracted) in a cost effective manner? What about chase-ups?

Legal and Compliance

• Do you already have a QI programme and how will this be affected?• Local secrecy laws could hinder or even prevent compliance. How will this be mitigated?• How should secrecy waivers be recorded and maintained?• Will client documentation (e.g. term sheets, risk notices, etc.) need to be future-proofed?

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How the industry is managing FATCA

Projects How managed Current state

Category 1

BanksBrokers

Custodians

• Potentially global, multi-million pound implementation projects

• Centrally managed with regional/ country specific programmes

• Many larger institutions are established in terms of creating FATCA project teams and have undertaken initial impact assessments

• Smaller institutions appear to be playing a waiting game to see how regulation will change, including timelines

Category 2

FundsAsset

Managers

• Smaller budgets, multiple sub-programmes

• Piggy-backing off parent bank where applicable

• Larger fund managers are being centrally managed

• Likely to see locally managed programmes for smaller institutions

• High level programme plans being drafted

• Few actively undertaking FATCA programmes, generally waiting for new guidance notices

• Believe they can implement FATCA within shorter timeframes than larger financial institutions

Category 3

Insurance Companies

• Potentially global, multi-million pound implementation projects

• Large, global companies are being centrally managed

• Smaller companies are being locally managed

• Many larger insurance companies are actively engaged in full scale implementation projects

• Smaller companies adopting 'wait and see'

$10 billion -Estimated FATCA compliance costs of all German banksSource: DWP Bank - German processor of securities transactions for 1,600 German banks

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Who does the FATCA

legislation affect?

• banks (retail, wholesale, investment or private)• custodians• asset managers• funds• brokers (where operating under matched principal)

• insurance companies (where their products have an investment element)

• any person or entity that receives US sourced income (where US sourced income is defined as interest, dividends, regular payments to and from a US account or entity)

What are the penalties for

non-compliance?

30% withholding tax will be suffered on 'withholdable payments' which will include:• interest, dividends and other periodic payments from US assets• gross proceeds on the disposition of property of a type that can produce US source income• deposit interest paid by US and foreign branches of US banks, even though certain portions of this interest may not be treated as US

source under current US tax law

What needs to be disclosed?

Full details on US accounts including name; address; Tax Identifier Number (TIN); balances; details on gross receipts and gross payments or withdrawals throughout the year

Why prepare now?

There are numerous strategic and operational decisions that need to be investigated which can impact an implementation timeframeBusinesses will need to have all the analysis, systems and controls in place prior to applying to the IRS for an FFI agreement, to ensure they obtain an agreement prior to the deadline

What if I want to opt out?

For larger financial institutions, it will be difficult to withdraw totally from the US markets, but for smaller or more boutique firms with limited exposure, complete withdrawal from US transactions may be the most cost effective optionControls and processes will be required to prevent any inadvertent transactions in US assets which would lead to additional withholding being appliedOpting out of FATCA may not remove all reporting responsibilities and requirementsIf you are a non-participating FFI (NPFFI), you will be subject to the 30% withholding rate

What are the key dates?

June 30, 2013 - FFI agreements need to be in place with IRSJanuary 1, 2014 - 30% withholding will be applied to US dividends and interest paymentsJanuary 1, 2015 - 30% withholding will be applied to all US source income

High-level summary

Appendix

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FATCAExpertise

IRS Relationship

Global Reach

Our UK and US Tax teams sit on industry committees, present at seminars and advise clients on the forthcoming impacts of this legislation. We have deep expertise in providing QI services to clients and negotiating with IRS on their behalf

Our US Tax team has good relationships with key IRS and Treasury personnel responsible for implementing FATCA

More than 2,500 partners provide clients with distinctive, high quality service in over 100 countries

Why Grant Thornton?

The Grant Thornton UK team has also been involved in providing advice and audit services to participants of the QI regime, FATCA's predecessor.

Bigger than RDR -…It is not an exaggeration to say that FATCA could be bigger than RDR for groups selling globally… Source: Stephen Lynam, Head of Tax, IMA, Investment Week online article

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Glossary

Deemed compliant

some FFIs (see below) can potentially be deemed compliant if they meet certain requirements and can have their application approved by the IRS

Exempt FFIsonly in certain situations may exemptions be qualified fore.g. Family Trusts, Holding Companies and "Start-Up" Companies not within the financial services sector

FFIForeign Financial Institution - any entity that accepts deposits in any way similar to a bank, holds financial assets for others or is investing/ trading in securities. These will be either participating ('Good') or non-participating ('Bad')

IRS US Internal Revenue Service

NFFENon Financial Foreign Entity - foreign entities that are not FFIs. If they are the beneficial owner of the relevant assets then this will have to be proven; in all other cases then the 30% withholding tax will be applied

NPFFI a Non-Participating FFI - those FFIs who do not have an agreement in place with the IRS

Passthrupayment

any withholdable payment or other payment to the extent attributable to a withholdable payment

PFFI a Participating FFI - those FFIs who have an agreement in place with the IRS

QIQualifying Intermediary - those financial institutions who already have an agreement in place with the IRS regarding correct withholding on behalf of their underlying clients

Recalcitrantthose account holders who have not been sufficiently and rigorously documented. These are therefore liable to the punitive 30% withholding tax rate

TIN

a Taxpayer Identification Number is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws.it is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSAwhereas all other TINs are issued by the IRS. A TIN must be furnished on returns, statements, and other tax related documents

US accounts

a depository or custodial account, equity or debt interest in an FFI owned by a US individual (under citizenship, green card or substantial presence test); company (as decided by place of incorporation); partnership (law of formation) or trust (prevailing court of law)

US indicia

• identification as US resident or citizen• green card holder (current or expired)• US address• US 'care of' address• power of attorney with US address• standing instructions to transfer funds to a US account or

directions received from a US address• e.g. US address; US place of birth; POA or signatory

authority granted to US person; "in-care-of", hold mail or P.O Box that is sole address on file; standing instructions to transfer funds to a US account, directions received from US address etc..)

US persons any US individual, body corporate, trust or partnership

Technical Notes: 2010-60 and 2011-34

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IRS Notice 2010-60: Documentation

• The most extensive and substantive part of the Notice addresses how FFIs must document their account holders.

• The Notice distinguishes between and provides specific rules for:– Existing accounts versus new accounts; and– Entity accounts versus individual accounts

• Documentation of Existing Individual Accounts– The Notice provides a series of filters/steps that a withholding agent must apply within certain

timeframes from the signing of a FFI Agreement ("Effective Dates")– Step 1: Eliminate individuals with average account balances less than $50k for the calendar year

preceding the Effective Date as outside FATCA, unless the FFI elects to include them.– Step 2: Treat any account greater than $50k as a US Account subject to FATCA if it is treated that

way for any other tax purpose (e.g. the FFI has a form W-9 and treats the account as subject to Form 1099 reporting).

– Step 3: For the remaining accounts, search all electronic records of the FFI for accounts with various specified US indicia (e.g. US address; US place of birth; POA or signatory authority granted to US person; "in-care-of", hold mail or P.O Box that is sole address on file; standing instructions to transfer funds to a US account, directions received from US address etc..)

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IRS Notice 2010-60: Documentation: Individual Accounts

• Documentation of Existing Individual Accounts (Cont'd)– Step 4: For any account that has US indicia, FFI must follow up with that population and request

Forms W-9 (e.g. indicia or US citizenship/residency) or Form W-8 (unless already in files) to establish US or non-US status definitively.

– Step 5: Within 2 years of FFI Agreement Effective Date, all accounts treated as non-US accounts under prior steps that exceeded $1 million in the year proceeding such Agreement must be documented under the new account opening procedures (described below) to ensure that they are indeed not US accounts.

– Step 6: Within 5 years of FFI Agreement Effective Date, all accounts treated as non-US accounts under prior steps must be documented under the new account opening procedures.

• Documentation of New Individual Accounts– Steps 1 and 2: Same as for existing accounts ($50k account balance exclusion; already treated

as US account for other purposes). NOTE: Notice is not clear as to whether records outside the business line opening the new account must be searched for existing US treatment.

– Step 3: Collect documentary evidence establishing US or non-US status and a Form W-9 for any account holder identified as a US person. NOTE Not clear what will constitute "documentary evidence" for this purpose.

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IRS Notice 2010-60: Documentation: Individual Accounts

• Documentation of New Individual Accounts (Cont'd)– Step 4: For accounts that appear to be non-US accounts based on the documentary evidence

collected, examine all other information collected in connection with the new account (e.g. KYC, AML, etc.) to see if there is any specified US indicia.

– Step 5: For any accounts in Step 4 that contain US indicia, collect additional documentation, including Forms W-9 or W-8 to establish US, or non-US status. Any non-cooperative account holder should be treated as "recalcitrant" account holder potentially subject to FATCA withholding.

– Step 6: Repeat Steps 4 and 5 each time the FFI knows or has reason to know that circumstances affecting the correctness of the classification of an account as a US Account have changed.

• Note: Will this require periodic sear of all accounts post-FATCA?• Could Step 6 be triggered if a relationship manager informally learns of a new US investor in

an NFFE?• Are FFIs on notice regarding complicated terms of trust or other vehicles that may result in

new US beneficiaries/owners?

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IRS Notice 2010-60: Documentation: Entity Accounts

• Documentation of Existing Entity Accounts– Step 1: Treat any entity as identified as a US person for other US tax purposes as a

US person unless they provide documentation establishing non-US status.– Step 2: Conduct electronic search for US entities– Step 3: Presume any entity not treated as a US entity in Step 1 and 2 is a non-US

entity:» Step 3A: Tentatively presume entities to be FFIs if they can be clearly

determined from their names.» Step 3B: For those so identified in Step 3A, obtain certification of FFI

status and FFI EIN in order to treat as an FFI.» Step 3C: For those not providing information required in Step 3B, obtain

documentation establishing status for FATCA purposes (e.g. FFI, NFFE, participating or not, etc.)

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IRS Notice 2010-60: Documentation: Entity Accounts (Cont'd)

– Step 4: For entities not identified as a US entity or FFI in prior steps:» Step 4A: Examine account file for evidence that entity is engaged in active non-

financial trade or business. If present, treat as expected NFFE.» Step 4B: Solicit those entities with no account data in Step 4A, for their status for

FATCA purposes (i.e. FFI, NFFE and whether active or passive NFFE).» Step 4C: If entity is an NFFE, collect documentation establishing that the NFFE is

an "expected NFFE" or documentation establishing identity of substantial US owners. Any non responsive account holders must be treated as recalcitrant.

• Documentation of New Entity Accounts– Follow procedures similar to those for existing accounts to establish treatment of entity for FATCA

purposes, BUT– Examine all account data for regulatory purposes to ensure treatment is consistent (e.g. account

opening KYC/AML information establishes that NFFE is not expected but has substantial US owners).

Notice 2011-34

• Procedures for identification of pre-existing individual accounts– 1.Documented US accounts - treated as specified US persons with US accounts– 2.Accounts of $50,000 or less - treated as non-US (but needs to be aggregated across owner)– 3.Private Banking accounts - undergo specified identification, paper and electronic review.

Consider nominee/trust arrangements etc– 4.Accounts with US indicia (residence, citizenship, place of birth, associated addresses, standing

instructions from US, use of "care of" address, US power of attorney or authority– 5.Accounts of $500,000 or more - diligent review of all associated documentation– 6. Annual retesting - as of third year following effective date of FFI agreement

• Certifying completion of Customer Identification procedures– Chief Compliance officer or responsible officer– certify completion of Steps 1 - 3 within one year of the effective date of the FFI agreement– Step 4 and 5 within 2 years of effective date of FFI agreement– certify that management personnel didn’t assist account holders in avoiding Identification

Notice 2011-34

• Passthru payment - withholdable payment or attributable to a withholdable payment.• Will need to calculate and publish a passthru payment percentage ('PPP')

– ratio of US assets / total assets– quarterly calculations– if PPP is not published then deemed to have a PPP of 100%– a payment will be passthru following the sum of witholdable element and non withholdable

element multiplied by PPP of issuer (if custodial) or payor FFI (non-custodial)– comments requested on alternative methods

• Deemed compliant status– Apply for deemed compliant status, obtain FFI-EIN, certify to IRS every 3 years– Single Country Bank Groups, Local FFI Members of PFFI Groups, Certain investment vehicles

• Expanded Affiliated Groups– All PFFI or deemed compliant. Co-ordinated global process but local process. Appoint lead FFI– Centralized compliance option. Particularly for collectives with same manager.

• Qualified Intemdiaries– All QIs to become FFIs.– QIAs ending in 2012 automatically extended to 2013