First IRS FATCA list of 77,000 financial institutions reveals successes

The tiny Pacific island of Tonga had only one registrant, while the Cayman Islands had nearly 15,000. The African nation of Gabon had three, while German 2,554. Even the “State of Palestine,” a jurisdiction not recognized by the United States, made the list with 23 registrants.

That sampling encompasses just a few of the jurisdictions and entities found on the first list of 77,353 institutions that have registered with the US Internal Revenue Service to comply with the Foreign Account Tax Compliance Act.

Released June 2 on the IRS website, the “foreign financial institution” list contains a huge range of banks, securities dealers, investment funds and other entities that that have obtained “global intermediary identification numbers (GIINs)” through registration with the IRS. The list includes institutions that have entered into FFI agreements directly with the IRS consenting to FATCA’s due diligence, account reporting and withholding requirements, and those that are covered by the terms of their nation’s intergovernmental agreement (IGA) with the US Treasury.

The FFI list provides one of the best illustrations to date of the international spread of FATCA, which generally requires non-US institutions to identify their US accountholders and report them to the IRS (or their own tax authorities, under certain IGAs).

However, it also indicates some of the challenges still facing the US Treasury as it attempts to enlist other nations and their financial institutions to sign on to the far-reaching tax evasion and account reporting law.

Infographic: FATCA FFI List by the Numbers

Combing through the list, some interesting trends emerge. Registrations from institutions located in offshore financial centers, including some that have been labeled “secrecy havens” in the past, make up a substantial portion of the total. The Cayman Islands alone accounts for 20% of all registrants, or 14,835 institutions. Over 4,000 institutions from Switzerland registered, to comply with the terms of that nation’s Model II IGA.

Offshore centers dominate list, while some major economies are  

At the same time, registrations have been scarce among some major developing nations and economic powerhouses. The list includes only 210 institutions from China, and 513 from Russia. The participation of both these nations in FATCA remains an open question. Scant information has emerged regarding China’s adoption of an IGA, and talks between the US Treasury and Russian Finance Ministry have been disrupted by the ongoing conflict in the Ukraine.

While no hard figures exist, estimates by analysts have stated there could be roughly 200,000 institutions affected by FATCA globally. Tens of thousands of institutions with FATCA compliance duties may still have to register with the IRS.

“The glass is half full or half empty, depending on your perspective. I’m sure there are a lot more institutions out there [that haven’t registered],” says Bruce Zagaris, partner with Berliner, Corcoran & Rowe in Washington, DC, and an expert in international tax compliance.

To date, the US has entered into IGAs with 70 nations, territories and other jurisdictions. That figure still leaves 123 countries whose institutions are required to register and report directly to the IRS, out of a total 193 jurisdictions worldwide.

The first list has been issued less than a month before FATCA becomes effective on July 1, 2014. On that date, institutions must be prepared to comply with many of FATCA’s key provisions, including certain due diligence and onboarding steps for new customers and implementation of certain FATCA withholding provisions. To be included on this first list, institutions had to register through the IRS online portal by May 5.

As smaller institutions struggle with FATCA, G20 plans wider exchange

The IRS has stated it will post updated lists on a monthly basis, but that timeline will still put the release of the next list after FATCA’s July 1 start date. While the recent announcement of a two-year “transition period” in FATCA administration and enforcement by the IRS has eased some of the pressure to become compliant, institutions that do not register and receive a GIIN still risk withholding on payments from the US.

[Non-US] financial institutions don’t seem to have a lot of choices on compliance,” says Zagaris. “Even if they don’t have US-source income, they still have to contend with the foreign pass-thru rule. Eventually, once those rules are issued they’re going to be cut off from a huge market.”

Zagaris notes that FATCA’s sheer complexity may have hampered compliance efforts at many non-US institutions, including those facing language barriers.

[Staff responsible for FATCA at] some institutions don’t even speak English, and then they’re forced to use these 80-something technical definitions that even US tax lawyers sometimes have difficulties with,” he says.

Despite the challenges, even small institutions are likely to face increased reporting and customer due diligence duties in the future, as tax compliance expands from a US-dominated effort to one receiving wider global acceptance.

“FATCA is just a prelude to other broader data exchanges since the G20 has committed to more account information exchange,” Zagaris says. “The international community is moving forward with automatic information exchange.”