U.S.A.: FATCA - Proposed regulations for FATCA implementation

On 8 February 2012, Treasury and the IRS issued the proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).

Background

The Foreign Accounts Tax Compliance Act (FATCA) was enacted in 2010 by Congress as part of the HIRE Act. It provides for the imposition of withholding taxes in certain circumstances as a mechanism for obtaining additional information reporting with respect to foreign accounts held by U.S. persons.

As a consequence, in order to avoid withholding under FATCA, Foreign Financial Institutions (FFIs) must enter into an agreement with the IRS to:

1. identify U.S. accounts,
2. report certain information to the IRS regarding U.S. accounts, and
3. withhold a 30% tax on payments to non-participating FFIs and account holders who are unwilling to provide the required information.

Proposed Regulations

The proposed regulations implement FATCA’s obligations in stages in order to minimize burdens and costs in a manner consistent with the compliances objectives to achieve. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.

The Treasury and IRS indicate that the proposed regulations will:

• Reduce the administrative burdens associated with identifying U:S: accounts by calibrating due diligence requirements based on the value and risk profile of the account and by permitting FFIs in many cases to rely on information they already collect, including information received to comply with anti-money laundering and “know your customer” rules;
• Expand the categories of FFIs that are deemed to comply with FATCA without the need to enter into an agreement with the IRS, in order to focus the application of FATCA on higher risk financial institutions;
• Phase-in the reporting and withholding obligations of FATCA over an extended transition period to provide sufficient lead time for financial institutions to develop necessary systems and maximize the number of financial institutions that will be able to comply with FATCA.

In addition, the Treasury Department has issued a statement jointly with France, Germany, Italy, Spain and the United Kingdom expressing mutual intent to pursue a government-to-government framework for implementing FATCA. This framework would allow for information sharing pursuant to existing bilateral income tax treaties and allow FFIs to report the necessary information to their respective governments rather that to the IRS. The Treasury will use this model to engage in discussions with other countries.

From a practical point of view, the IRS has indicated that registration to enter into an agreement with the IRS will take place through an online system that will be available as of 1 January 2013.

The above information is not meant to be exhaustive. We will continue to monitor the IRS and Commentators publications and will provide you with further relevant information in due course. For the proposed regulations, please see REG-121647-10.

Further information

For further information, please contact the Clearstream Banking¹ Tax Help Desk on:

or Clearstream Banking Customer Service or your Relationship Officer.

1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).