FATCA

Tax transparency for US persons

Tax transparency was one of the agenda items at the G8 summit held in June 2013, demonstrating how seriously governments are taking tax transparency. An exchange of information between tax authorities and a new global standard were agreed. FATCA is the implementation of G20 commitment in the United States.

Overview

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is legislation introduced by the United States Government and is designed to encourage enhanced tax compliance. HSBC is committed to becoming fully FATCA compliant in all countries where we operate.

FATCA seeks to prevent US persons from using non-US accounts and non-US entities to avoid US taxation on their income and assets.

There are three key elements to HSBC’s FATCA compliance:

  • The classification, reporting and withholding obligations under the legislation relating to HSBC clients or counterparties.
  • The registration of affected HSBC entities with the IRS as foreign financial institutions (FFIs) and provision of HSBC’s FATCA documentation to our clients and counterparties.
  • The ongoing monitoring and certification of FATCA compliance.

Requirements under FATCA regulations will affect global financial institutions from 1 July 2014, when FATCA obligations to classify individuals will commence. The IRS website contains General FATCA FAQs, covering Qualified Intermediaries (QIs), Withholding Foreign Partnerships (WPs) and Withholding Foreign Trusts (WTs).

The IRS website also contains all FATCA timelines.

iFrom Notice 2014-33: Comments received after the publication of the temporary Chapter 4 regulations have indicated that the release dates of the final Forms W-8 and accompanying instructions present practical problems for both withholding agents and FFIs to implement the new account opening procedures beginning on 1 July 2014. In consideration of these comments, the US Treasury and the IRS intend to amend the Chapter 4 regulations to allow a withholding agent or FFI to treat an obligation held by an entity that is issued, opened, or executed on or after 1 July 2014, and before 1 January 2015, as a pre-existing obligation for purposes of implementing the applicable due diligence, withholding, and reporting requirements under Chapter 4. The proposed amendments to the Chapter 4 regulations will only be available to obligations held by entities.

Last updated: 2 August 2016

Classification

What are FATCA Classification requirements?

FATCA requirements regarding classification are set out in sections 1471 through 1474 of the United States Internal Revenue Code of 1986 and regulations made thereunder and in the Intergovernmental Agreements (IGAs) negotiated between individual jurisdictions and the US.

A key part of being FATCA compliant is the requirement for HSBC to hold FATCA classification information and documentation on its customers, including financial institutions as well as corporates and funds. It is therefore important for companies trading with HSBC to be in a position to provide this information when requested by HSBC. HSBC requires all new entity clients to provide us with evidence of their FATCA classification, including a Global Intermediary Identification Number (GIIN) where applicable.

HSBC Request for Client GIINs

HSBC are currently reaching out via SWIFT to our financial services clients and counterparties (including funds) that have registered with the IRS seeking the following information:

  • The Global Intermediary Identification Number (GIIN) for the legal entity(s) with which you do business with HSBC
  • The legal entity name(s) to which the GIIN(s) apply
  • Legal Entity Identifier(s) (if available)
  • The Country(s) of Incorporation of the legal entity(s)
  • Fund code (if entity is a fund)

If you receive a request for this information, please respond promptly so that we can proceed with the FATCA classification of our clients as efficiently as possible. If you have not received a request for this information but are registered with the IRS, you can provide your FATCA GIIN information directly via email to gbmfatca.clientgiins@hsbc.com

How to obtain a Global Intermediary Identification Number (GIIN)

The Internal Revenue Service (IRS) FATCA portal has been established to enable registration of Foreign Financial Institutions (FFIs) that require a Global Intermediary Identification Number (GIIN) in order to achieve FATCA compliance.

Each entity needs to consider its own FATCA status and determine whether registration is appropriate. Entities that are not financial institutions or do not need to register will still have to be able to document their FATCA status.

The IRS List of registered FFIs is available here.

HSBC expects many non-US financial institutions to register with the IRS in order to verify their compliance and minimise any potential withholding liability.

Last updated: 2 August 2016

Withholding

General FATCA withholding requirements

Foreign Financial Institutions (FFIs) that enter into an agreement with the IRS to comply with FATCA (or who are otherwise compliant with FATCA pursuant to domestic FATCA legislation introduced pursuant to FATCA inter-governmental agreements) may be required to withhold 30 percent on certain payments to payees if such payees do not comply with FATCA or do not provide suitable identifying documentation as required under FATCA.

To avoid being withheld upon, FFIs should, where applicable, comply with FATCA, for example by registering with the IRS.

FATCA regulations exempt many categories of FFIs from the requirement to register, including most governmental entities, most non-profit organisations, as well as certain small, local financial institutions.

HSBC’s FATCA withholding requirements

HSBC is committed to becoming fully FATCA compliant in all countries where we operate. Existing client entities, who hold an in-scope product with HSBC and who are either non-participating with FATCA or who are unable to provide HSBC with information in relation to their FATCA classification by 30 June 2016, where requested (including their Global Intermediary Identification Number or GIIN), may be subject to the 30 percent withholding tax on all US sourced income.

HSBC expects many non-US financial entities to register with the IRS in order to minimise any potential withholding liability.

How are FFIs defined?

The IRS states that FFIs include, but are not limited to:

  • Depository institutions (e.g. banks)
  • Custodial institutions (e.g. entities that provide custody services)
  • Investment entities (e.g. investment funds, including hedge funds or private equity funds)
  • Certain types of insurance companies with cash value products or annuities

Unless otherwise exempt, FFIs that do comply with the appropriate procedures to become FATCA compliant, including registration with the IRS, if applicable, face a 30 percent withholding tax on certain US-source payments made to them.

An FFI that registers on the ‘FATCA Registration Website’ (the Registration Resources page provides registration instructions, a user guide, FAQs, etc.) will, upon approval, receive a GIIN from the IRS, unless the FFI is treated as a Limited FFIi.

NB. The IRS publishes a list of registered and approved FFIs and their GIINs every month. A FFI uses its GIIN to identify that it is registered and approved to both withholding agents and the IRS (so-called ‘W’ forms are also used for this purpose).

iLimited FFIs are entities that are part of FFI groups and would otherwise qualify as participating FFIs, but reside in jurisdictions that legally prevent compliance with FATCA. Limited FFIs do not receive a GIIN.

Last updated: 30 June 2014

Reporting

What are the FATCA reporting requirements?

As part of being FATCA compliant, financial institutions are responsible for reporting information in relation to financial accounts to the US Internal Revenue Service (or the local tax authority where specified by a FATCA Intergovernmental Agreement). Reporting will generally be required on accounts held by certain US persons, passive entities with substantial US ownership or that are under US control, as well as non-compliant account holders.

FATCA reporting: country by country

Countries are negotiating different agreements (IGAs) with the IRS to build FATCA compliance into their legal framework. This will affect the way that non-US Foreign Financial Institutions report information on US reportable accounts they hold.

Currently there are two models for IGAs:

  • IGA model 1 (M1) requires an FFI to provide all information on US reportable accounts they hold to the local tax authority of the resident country
  • IGA model 2 (M2) requires an FFI to provide all information on US reportable accounts they hold directly to the IRS (if consent to reporting is obtained from the reportable person) or to the local tax authority of the resident country (if consent to reporting is not obtained)

Jurisdictions treated as having an intergovernmental agreement in effect can be viewed on the IRS website.

For more information, please the IRS’s FATCA FAQs.

Last updated: 30 June 2014

HSBC Entity GIINs

 

HSBC Entity GIINs

HSBC has published its Global Intermediary Identification Numbers (GIINs). A list of GIINs are available here.

Last updated: 16 September 2014