Under The Foreign Account Tax Compliance Act (FATCA), foreign financial institutions (FFI) are required to register with the IRS and report any US account holders, or face a potential 30% withholding tax from US sourced payments. This global collection of data on US accounts has forced foreign banks, custodial agents and investment entities to enter into a reporting relationship with the IRS if they wish to have US taxpayers as customers. The withholding agents i.e. those that are making US sourced payments, have to identify which FFIs are in compliance and then withhold on those FFIs that are not. There is a system in place for withholding agents to identify FFIs in compliance and for the IRA to track the data.
The GIIN and it Effect on FFIs and Withholding Agents
The way that withholding agents and the IRS can identify FFIs that have registered is via the Global Intermediary Identification Number (GIIN) that the IRS issues to the FFI. In this way, a withholding agent may search the database of FFIs to see if they have registered, and if they have been given a GIIN. According to the IRS website:
“Withholding agents may rely on the IRS published list or FFI list search and download tool to verify an FFI’s GIIN and not withhold on payments made to the FFI.” http://www.irs.gov/Businesses/Corporations/Information-for-Foreign-Financial-Institutions
Therefore, the GIIN simplifies the process for withholding agents to know which FFIs have complied with the FATCA directives, and then to fill out Form 1042-S accurately.
On Form 1042-S there is a box for reporting the FFI’s GIIN along with other data required. Interestingly, there is also a box for withholding agents to report their own GIIN, which may be a way to make sure that payments are not being made through a third party to avoid the FATCA requirements. The GIIN is a 10-character number, which identifies the FFI specifically for registration purposes. The GIIN is structured like this:
123456 . 12345 . 12 .123
- The first six numbers will be alphanumeric and is the FATCA ID.
- The next five numbers will be alphanumeric and identify the Financial Institution Type.
- The next two numbers are alpha only and identify the Status Code for the FFI.
- The last three numbers are only numeric and identify the Country Code.
For countries with an intergovernmental agreement (IGA), the FFIs may have different requirements since they report to their own government, and not directly to the IRS. It should be noted that many countries have elected to be a part of an IGA to lessen the burden on its own FFIs to deal directly with the IRS. Also, these IGAs often allow for reciprocal information sharing with the US who will offer information on foreign account holders in US banks. In any case, it is easy to imagine that the GIIN system will be used and expanded under any type of agreement.
