United States: final regulations issued on requirements under FATCAJanuary 28, 2013
The US Treasury Department and the Internal Revenue Service (IRS) issued final regulations (TD 9610) on 17 January 2013 to provide guidance on account identification, information reporting and withholding requirements that the Foreign Account Tax Compliance Act (FATCA) imposes on foreign financial institutions (FFIs), other foreign entities and US withholding agents.
The final regulations adopt, with modifications, the proposed regulations (REG-121647-10) issued on 15 February 2012, and the amendments described in IRS Announcement 2012-42 issued on 24 October 2012.
The final regulations become effective on 28 January 2013.
The issuance of the final regulations was announced in a press release issued by the Treasury Department on 17 January 2013. The press release states that the final regulations implement FATCA in the following manners:
- The final regulations coordinate the obligations for FFIs under the regulations and the intergovernmental agreements in order to reduce administrative burdens for FFIs that operate in multiple jurisdictions.
- The final regulations phase in over an extended transition period to provide sufficient time for FFIs to develop necessary systems.
- The final regulations align the regulatory timelines with the timelines described in the intergovernmental agreements to avoid confusion and unnecessary duplicative procedures.
- The final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.
- The final regulations expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds.
- The final regulations permit certain investment entities to be reported by the FFIs with which they hold accounts, rather than being required to register as FFIs and report to the IRS.
- The final regulations clarify the types of passive investment entities that must be identified and reported by FFIs.
- The final regulations provide more streamlined registration (which will take place through an online system) and compliance procedures for groups of financial institutions, including commonly managed investment funds.
- The final regulations provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.
FACTA was enacted in 2010 as Sections 1471 to 1474 of the US Internal Revenue Code (IRC) to combat non-compliance by US taxpayers using foreign accounts.
FATCA requires FFIs to report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.
FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to US investments.
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