On March 18, 2010, the U.S. Congress enacted the Foreign Account Tax Compliance Act ("FATCA") and added its provisions to the Internal Revenue Code (the "Code"). FATCA is a broad reporting and withholding regime designed to improve tax compliance involving financial assets held offshore. FATCA generally requires foreign financial institutions ("FFIs") to report certain information on assets held by U.S. taxpayers. Non-compliant FFIs are subject to significant withholding on payments from the U.S. The substantive provisions of FATCA will be phased in over the course of the next several years.
In general terms, an FFI is defined as any financial institution which is a foreign entity. A financial institution is defined as any entity that (i) accepts deposits in the ordinary course of a banking or similar business, (ii) holds financial assets for the account of others as a substantial portion of its business, or (iii) is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting or trading in securities, partnership interests or commodities. In general, the requirements are applied to all FFIs (including foreign partnerships) commonly owned over 50 percent ("Expanded Affiliated Group").
On February 8, 2012, Treasury and the Internal Revenue Service ("IRS") issued Proposed Regulations implementing FATCA. The Proposed Regulations are 388 pages long and, in response to the concerns of stakeholders, provide significant relief from several of the most burdensome requirements that were to be imposed under earlier IRS Notices (2010-60, 2011-34 and 2011-53), including the implementation timeline. At the same time, Treasury issued a groundbreaking Joint Statement from the United States, France, Germany, Italy, Spain and the United Kingdom Regarding an Intergovernmental Approach to Improving International Tax Compliance and Implementing FATCA ("Joint Statement"). In the Joint Statement the six governments agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange and based it on existing bilateral tax treaties.
See the full text of our Alert summarizing FATCA's legal requirements and the most significant aspects of these recent developments.
For assistance or further information about FATCA, please review the material available on Baker Hostetler's FATCA Information Page or contact one of the attorneys listed on the right.
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