If you sold, liquidated or otherwise terminated a Reporting Financial Institution (FI) prior to January 1, 2016 you may need to deregister that FI to avoid penalties for failure to update its registration or failure to report.
The IRS and other tax authorities require FIs to register in a FATCA and/or CRS portal. If the registered FI was liquidated prior to January 1, 2016, it is likely that there is no need to do Y2016 CRS or FATCA reporting.
However, where registration updating or nil reporting is required, the tax authority expects that the currently registered FI will update its registration and/or file a nil report. Failure to do so may result in financial penalties.
Certain entities may register in the IRS FATCA portal and, upon registration approval, receive a Global Intermediary Identification Number (GIIN). Once the GIIN is issued, the registered entity will be identified on the published IRS FFI List. The IRS FFI List is updated monthly to add or remove approved entities.
If the entity is sold, liquidated or otherwise terminated, it is necessary to determine whether to deregister the entity in the IRS FATCA portal.
Once the FATCA registration is deleted, the FI, and any applicable branches, will no longer be published on the FFI List. Similarly, once a Sponsoring Entity’s registration is deleted, it, the Sponsored Entity, and any sponsored subsidiary branches will no longer be published on the FFI List.
Non U.S. FATCA/CRS Portals
FATCA and associated Intergovernmental Agreements (IGAs) do not establish a local mandatory registration process. It is up to each Model 1 IGA and Model 2 IGA jurisdiction to decide whether to create a registration requirement.
Similarly, the OECD does not maintain a centralized CRS registration system. Each CRS Participating Jurisdiction determines whether to establish a registration process when locally implementing CRS.
When a new entity is formed or acquired, the FI must determine if there is a local FATCA and/or CRS registration requirement. Some jurisdictions require that an FI register in the local FATCA/CRS portal regardless of reportable accounts (e.g. Cayman Islands). Some jurisdictions require registration and nil reporting (e.g. Guernsey).
Local tax authorities will identify those FIs that failed to update an existing registration (e.g. Cayman Islands variation) by reviewing the existing list of registered FIs. The tax authority may penalize those who do not update their registration. For example, the Cayman Islands recently advised registrants that failure to complete a variation/update may result in a fine of KYD50,000 (USD61,000).
The same review process will be conducted by a tax authority to determine which FIs failed to file a nil report. Many tax authorities will also perform an additional review by identifying FIs on the IRS GIIN list that have failed to register and/or file nil reports.
Deregistration Decision Process
It is critical that FIs establish internal policies and procedures to facilitate communication regarding the sale, liquidation or other termination of an entity. Part of this process must include the appropriate timing for deregistering an entity in the IRS FATCA portal and/or a non U.S. FATCA/CRS portal.
There may be reasons to postpone the deregistration, but if the entity is not timely deregistered the FI must abide by local registration and reporting requirements or else face potential penalties.
For assistance in deregistering an entity or drafting legal entity management policies and procedures, please contact me at firstname.lastname@example.org