Prior to FATCA and CRS, the collection of a Tax ID number was not necessary, and so most Financial Institutions did not collect this data from foreigners opening financial accounts. However, the US tax authorities need a US Tax ID Number (TIN) to process FATCA tax data and are requiring a TIN when submitting FATCA reports.
The initial FATCA guidance provided a transition period through 2016, which was then extended by Notice 2017-46 (https://www.irs.gov/pub/irs-drop/n-17-46.pdf) through the end of 2019. The IRS notice extending this transition period stated that the FFI would not be considered in substantial noncompliance with the intergovernmental agreement (IGA) if it reported the U.S. accounts for calendar years 2017, 2018, and 2019 without the TIN. After the end of the transition relief, the FFI was expected to close the account if it could not obtain the TIN.
Many Financial Institutions are still struggling to get TINs from all US account holders. A FAQ posted in October 2019 provided additional guidance about the collection of TINs. Question 3 in the “Reporting” Section of the US FAQs located at https://www.irs.gov/businesses/corporations/frequently-asked-questions-faqs-fatca-compliance-legal states:
Q3. We are a Model 1 FFI and the TIN relief provided under Notice 2017-46 regarding treatment of pre-existing accounts will expire with the reporting of the 2019 data. Do we need to report all required TINs when we provide 2020 and future tax year data?
The transition relief for FFIs to obtain TINs that extended over a period ending on December 31, 2019, will be expiring with reporting for calendar year 2019. The first year a U.S. TIN will be required to be reported concerning a U.S. reportable account is with respect to the 2020 tax year, which is due to be exchanged by a FATCA Partner by September 30, 2021. However, a reporting Model 1 FFI is not required to immediately close or withhold on accounts that do not contain a TIN beginning January 1, 2020. An error notice will generate in scenarios where the TIN is missing or when the TIN is completed with nine As or 0s (zeros) or in a systemically identifiable pattern (123456789, 987654321, 222222222, etc.) that indicates it is invalid. The error notice will provide 120 days to correct the issue. Consistent with the Intergovernmental Agreement (IGA) and Competent Authority Arrangement (CAA), if applicable, if the TIN is not provided within that 120 day period, the U.S. will evaluate the data received and determine through a consideration of the facts and circumstances if there is significant non-compliance. The IRS will not automatically conclude that the absence of a TIN leads to a determination of significant non-compliance. Instead, the IRS will take account of the facts and circumstances leading to the absence of the TIN, such as the reasons why the TIN could not be obtained, whether the FI has adequate procedures in place to obtain TINs and the efforts made by the FI to obtain them. If the U.S. determines that an FI is in significant non-compliance, the U.S. would notify the exchange partner and will work with the partner, to include further appropriate consideration of the facts and circumstances, over the next 18 months to address the non-compliance. The FI would have at least 18 months from the date of the notification of noncompliance to correct the TIN error before the IRS took any other further action, such as removing the FI’s Global Intermediary Identification Number from the IRS FFI List. An FFI that no longer has a valid GIIN risks being subject to withholding on certain U.S. source payments made to the FI.
This, in effect, provides a bit more relief. Significant non-compliance results in the IRS instituting a notice that begins an 18-month period for the Financial Institution to come back into compliance. After this period, the Financial Institution may have its GIIN revoked and any US FDAP income will be taxes at 30%.