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Why You Still Need to Worry about FATCA

11 April 2012
Presenters: Mary Burke Baker

In March of 2010, a set of foreign information reporting and withholding rules known as the Foreign Account Tax Compliance Act, or “FATCA,” became law. Almost two years later, on February 8, 2012, the Treasury Department finally has issued proposed regulations to interpret and implement FATCA. On the same day that the regulations were issued, the United States, the United Kingdom, France, Germany, Italy and Spain issued a joint statement expressing their intent to explore an alternative approach to FATCA through an intergovernmental framework.

The regulations have caught the attention of foreign financial institutions ("FFIs") around the world that are struggling to understand FATCA and what they must do to comply with new IRS requirements in order to avoid a 30% withholding tax on their U.S.-source income - especially when local privacy laws and impending new EU regulatory requirements clash with the FATCA rules. The prospect of an intergovernmental option offers a mix of hope and anxiety as foreign financial institutions wonder whether they should gear up for the FATCA rules or wait to see if an intergovernmental arrangement can be reached and how it will apply. 

This webinar addressed the following topics that will be of interest to anyone affected by the proposed FATCA regulations and intergovernmental framework:

  • Changes to the definition of financial account, including the addition of certain insurance contracts
  • New categories of entities that are deemed to comply with FATCA
  • New due diligence requirements for FFIs and withholding agents to identify U.S. accounts and U.S. payees
  • Verification procedures
  • Phase-in of withholding and information reporting
  • Temporary relief for FFIs with affiliates that face legal prohibitions on compliance
  • The problem of foreign “passthru payments” and delay in withholding on such payments until at least January 1, 2017
  • Expanded scope of “grandfathered obligations”
  • Prospects and politics of the proposed intergovernmental approach