UK and International Tax news

HIRE Act – FATCA Update

Thursday 12th May 2011

The US ‘Hiring Incentives to Restore Employment Act of 2010′ (HIRE Act) may be the most wide ranging tax and information reporting legislation ever enacted, potentially affecting all investors including individuals, trusts, family offices, other entities, almost all non-US banks, investment houses, brokerages, custody agents, mutual funds, hedge funds, private equity funds and life insurance providers with investments in the US.

The HIRE Act requires any entity classified as a ‘foreign financial institution’ (FFI) to either enter into an arrangement by which the FFI agrees to determine which of its account holders are US citizens, green card holders or tax residents (US persons), or entities which are substantially owned by US persons, or suffer 30% gross withholding on all amounts invested into the US.  The withholding would apply to virtually all amounts invested by the FFI into the US, whether for its own account or for the account of it’s ‘account holders,’ regardless of whether they are US persons or not.

The Hire Act was enacted in March 2010 but left a number of issues to be determined at the discretion of the IRS and the US Treasury.  In September 2010, the IRS issued the first formal guidance on certain priority issues relating to these new provisions – IRS Notice 2010-60.

The IRS has now released Notice 2011-34 which provides guidance in response to certain priority concerns identified by commentators following the publication of Notice 2010-60 and requests further comments with respect to specific issues.  Treasury and the IRS intend to issue regulations incorporating the guidance described in this latest Notice and addressing other matters.  In addition, Treasury and the IRS intend to publish draft FFI Agreements and draft information reporting and certification forms.

Section I of the latest Notice provides updated guidance regarding the procedures to be followed by participating FFIs in identifying U.S. accounts among their preexisting individual accounts.

Section II provides guidance regarding the definition of the term “passthru payment” and provides guidance with respect to the obligation of participating FFIs to withhold on passthru payments.

Section III provides guidance regarding certain categories of FFIs that will be deemed compliant under s.1471(b)(2) of the IRS Code.

Sections IV to VI provide further guidance on the reporting requirements of participating FFIs to report with respect to U.S. accounts, the treatment of Qualified Intermediaries and expanded affiliated groups of FFIs.

If you would like further details on the latest Notice, please contact Keith Rushen on +44 (0)20 7486 2378.

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