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FATCA Framework Finalized, US Treasury Says

by Mike Godfrey, Tax-News.com, Washington

26 February 2014


The United States Department of the Treasury and the Internal Revenue Service (IRS) have released what they have called "the last substantial package of regulations necessary to implement the Foreign Account Tax Compliance Act (FATCA)."

FATCA, enacted by the US Congress in 2010, and now due to take effect on July 1 this year, is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by FFIs to disclose information about their US clients, including account ownership, balances, and amounts moving in and out of the accounts, will result in a requirement on US financial institutions to impose a 30 percent withholding tax on certain payments to them.

Final regulations for FATCA were originally published in January 2013. Since those regulations were issued, Treasury and the IRS have extended the start of withholding and account due diligence requirements by six months to July 1, 2014, opened the FATCA portal for FFIs in August 2013, issued a final FFI Agreement for financial institutions in January 2014, and received numerous comments with respect to the regulations during discussions with stakeholders worldwide.

The package of proposed and temporary regulations released on February 20 therefore makes additions and clarifications to the previously-issued FATCA regulations, and also provides guidance to coordinate FATCA rules with preexisting due diligence, reporting, and withholding requirements under other provisions of the US tax code.

In fact, the new regulations contain over fifty amendments and clarifications to the FATCA regulations issued in January 2013, "regarding ways to further reduce burdens consistent with the compliance objectives of the statute."

Guidance and key amendments provide for: a framework to allow certain entities to provide information on US account holders directly to the IRS, rather than through a withholding agent; the treatment of certain special-purpose debt securitization vehicles; the treatment of disregarded entities as branches of FFIs; the definition of an expanded affiliated group; and transitional rules for collateral arrangements prior to 2017.

In addition, it is pointed out that, although FATCA was passed in 2010, financial institutions and other withholding agents have long been required under other sections of the tax code to perform due diligence, report and, in certain cases, withhold with respect to certain payments. That includes existing provisions on reporting and backup withholding requirements regarding payments to US persons, and withholding and reporting requirements regarding payments to non-US persons.

The new guidance coordinates the pre-FATCA regimes with the requirements under FATCA to integrate these rules, reduces administrative burdens, and conforms the due diligence, withholding, and reporting rules under these provisions.

TAGS: individuals | compliance | Foreign Account Tax Compliance Act (FATCA) | tax | offshore confidentiality | tax compliance | FATCA | banking | financial services | offshore | offshore banking | withholding tax | United States | regulation | services | Compliance | Tax

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