UK and International Tax news

Implementation Of FATCA

Tuesday 9th August 2011

Further to our International Tax News item of 11 May 2011, the IRS has now released Notice 2011-53 which provides guidance on the  phasing in of the requirements of the Foreign Account Tax Compliance Act (FATCA). The new law targets non compliance by US taxpayers through foreign accounts. Under the Notice’s phased implementation approach, the IRS believes that  foreign financial institutions (FFIs) and US withholding agents are being given adequate time to build the systems needed to fully comply with FATCA.

FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act and 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.  In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

  • identify US accounts,
  • report certain information to the IRS regarding US accounts, and
  • withhold tax at 30% on certain payments to non-participating FFIs and account holders who are unwilling to provide the required information.

FFIs who do not enter into an agreement with the IRS will be subject to withholding on certain types of payments, including US source interest and dividends, gross proceeds from the disposal of US securities, and passthru payments.

The latest Notice provides a timeline for FFIs and US withholding agents to implement the various requirements of FATCA, in particular:

  • an FFI must enter into an agreement with the IRS by 30 June 2013 to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on 1 January 2014.
  • withholding on US source dividends and interest paid to non-participating FFIs will begin on 1 January 2014 and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on 1 January 2015.
  • due diligence requirements for identifying new and pre-existing US accounts (including certain high-risk accounts) will begin in 2013 and reporting requirements in 2014.
  • for purposes of the Notice, high risk accounts include private banking accounts with balances equal to or greater than $500,000.

Treasury and IRS have also said that they will continue to work closely with businesses and foreign governments to implement FATCA effectively.

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

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