Slide 1: FATCA – The Foreign Account Tax Compliance Act
FATCA – The Foreign Account Tax Compliance Act July 2012 July 2012
Slide 2: Table of Contents
Table of Contents 1. Classification 2 2. Due Diligence 7 3 Withholding Payments 3. 14 4. Reporting 21
Slide 3: What You Need to Take Away From This Session
What You Need to Take Away From This Session Increase your understanding of FATCA regulation and policy changes. The principles of FATCA – The four pillars of FATCA Classification Due Diligence Withholding Reporting – Who Wh is i iimpacted? t d? 1
Slide 4: 1. Classification
1. Classification ee
Slide 5: Objective of FATCA
Objective of FATCA FATCA’s objective is to uncover US tax evaders who invest directly in off-shore accounts or indirectly through ownership of foreign entities To reach this goal, FATCA will require foreign financial institutions (FFIs) to provide information to the IRS on US accounts. In additi
Slide 6: Foreign Financial Institutions (FFIs)
Foreign Financial Institutions (FFIs) An FFI is any non-US entity (i.e. created or organised outside the US) that falls into one of the following categories – Accepts deposits in the ordinary course of a banking or similar business (e.g. a bank) – Holds, as a substantial part of its business, fina
Slide 7: Types of Compliant FFIs
Types of Compliant FFIs “Participating” FFI – Enters into an FFI Agreement with IRS – Registration period starts 1 January 2013 – FFI Agreements first become effective 1 July 2013 “Deemed compliant” Registered FFI – Must register with IRS along with the rest of the expanded affiliated group of F
Slide 8: FFI Agreements
FFI Agreements FFI Agreements are effective on or after 1 July 2013 PFFI must adopt written policies and procedures regarding due diligence processes PFFI must conduct periodic internal reviews of its compliance with these policies and procedures and its FATCA obligations Observation: US tax
Slide 9: Withholding Agents
Withholding Agents A withholding agent is any person, US or foreign, that has control, receipt or custody of a Withholdable Payment Withholding agents are required to i Classify i. Cl if the th payees b by collecting ll ti andd verifying if i d documentation t ti under d d due dili diligence rul
Slide 10: 2. Due Diligence
2. Due Diligence FATCA Compliance and Impact
Slide 11: Critical Distinction
Critical Distinction USFIs and PFFIs must adopt written policies and procedures regarding due diligence processes for both pre-existing and new accounts – For USFIs, new account procedures should be in place by 1/1/2013 – For PFFIs, PFFIs new account procedures should be in place by 7/1/2013 or la
Slide 12: Account Distinctions
Account Distinctions Direct US Accounts Indirect US Accounts A direct account maintained by an account holder An account held by a US owned non-financial that is a “specified” US Person foreign entity is a US account – Whether held at an FFI or a USFI Excepted US persons – Publicly traded corp
Slide 13: Account Distinctions (Cont’d)
Account Distinctions (Cont’d) Off-shore vs. On-shore Obligations Individual vs. Entity Account Off-shore Obligation Entity – Anyone other than a natural person. – Any account, instrument, or contract maintained Includes corporations, partnerships, trusts, estates and executed at an office or bra
Slide 14: Account Distinctions (Cont’d)
Account Distinctions (Cont’d) Pre-existing Obligations Pre-existing Obligations USFIs – Pre-existing obligations are accounts Transition rule for 2014 – same as for USFIs opened or contracts entered into prior to Unless a PFFI elects otherwise, it is not required to January 2013 document a pre
Slide 15: Pre-existing Off-shore Accounts at PFFIs
Pre-existing Off-shore Accounts at PFFIs Individual accounts >US$1 million (as aggregated) subject to “enhanced review,” which must be completed within one year – Enhanced due diligence means review of all AML / KYC documentation for the account and related accounts and includes an inquiry q y of
Slide 16: Summary of Due Diligence for Pre-existing Accounts at a PFFI
Summary of Due Diligence for Pre-existing Accounts at a PFFI Pre-existing Account Remediation Account Exempted Completed Within Two years of FFI Completed Within One year of FFI T Type R i t ti Registration R i t ti Registration Individuals US$50,000 or Less US$50,000–1,000,000 High Value >US$1,000,
Slide 17: US Indicia of Individual Accounts at a PFFI
US Indicia of Individual Accounts at a PFFI PFFIs must review customer information for indicia, or indicators, of US status and request documentation from an account holder if one or more indicia of US status are found An individual account holder is treated as having US indicia if the account i
Slide 18: 3. Withholding Payments
3. Withholding Payments FATCA Compliance and Impact
Slide 19: What is a Withholdable Payment?
What is a Withholdable Payment? On or After 1 January 2014 On or After 1 January 2015 On or After 1 January 2017 at Earliest US source FDAP income (interest, ADD gross proceeds (plus accrued Foreign passthru payments paid dividends, royalties, etc.) interest) from sale / redemption of by PFFIs
Slide 20: Special Rules on FATCA Withholding
Special Rules on FATCA Withholding Exceptions from FATCA Withholding – Short-term interest / OID Debt with an original term of 183 days or less Excludes E l d commercial i l paper, repos, T T-bills bill – Income effectively connected with the conduct of a trade or business in the US (ECI) – Sa
Slide 21: Grandfathered Obligations
Grandfathered Obligations Payments on obligations outstanding on 1 January 2013 An FI will need to track grandfathered obligations and material modifications on its security data base, loans and contractual obligations Grandfathered obligations do not include – An instrument treated as an equi
Slide 22: Possible Modified Obligations
Possible Modified Obligations How to identify material modifications – Significant amendment of terms of debt obligation – Large consent payments made to holders of loans or debt securities in exchange for acceptance of new terms of debt – Rely on public documents for federal tax treatment of publ
Slide 23: Who Is Subject to Withholding?
Who Is Subject to Withholding? USFIs PFFIs No FATCA obligation to withhold on individuals PFFIs must withhold 30% on payments to – Non-participating FFIs Payments y of US source FDAP income to documented US persons – Includes limited branches and affiliates – Generally no withholding – This ma
Slide 24: Withholding Practicalities
Withholding Practicalities FATCA withholding is 30% FATCA withholding cannot be reduced by either statute or treaty Generally speaking, speaking if there is FATCA withholding, withholding then there would not be any US non-resident withholding (Chapter 3) or backup withholding (Chapter 61) – I
Slide 25: Withholding Timeline
Withholding Timeline First Reporting Types of Payments Subject to Withholding Tax Year Date Fixed, Determinable, Annual or Periodic (FDAP) Income from US sources 2014 2015 Dividends Interest Other US Source Income Gross proceeds from US securities 2015 2016 Sales or Redemptions of Stock, Mut
Slide 26: 4. Reporting
4. Reporting FATCA Compliance and Impact
Slide 27: Information Reporting By USFIs
Information Reporting By USFIs Payee Type Report What Form Type 1st Tax Year IRS Due Date Authority US Non-exempt Name, TIN and address of 1099 2013 March 31 IRC §§6041, 6042, Recipient non-exempt recipient (Electronic Filing) 6045 and 6049 A Aggregatet amountt for f each h income i type, or S
Slide 28: Reporting by PFFIs on US Accounts
Reporting by PFFIs on US Accounts Phased-in reporting on US accounts For 2013 report US accounts identified as of 6/30/2014 For tax year 2013 and 2014 – Report for each account holder – Name / address / TIN of each specified US account holder – Name / address / TIN (if any) of NFFE account hol
Slide 29: US Payors that are PFFIs
US Payors that are PFFIs US payors (other than US branches) that are PFFIs (e.g. US controlled foreign corporations) Must meet the same reporting requirements as PFFIs that are not US payors, but US payors that report US non-exempt recipients on Form 1099 as required satisfy the Chapter 4 repo
Slide 30: Reporting by PFFIs on Recalcitrant Accounts
Reporting by PFFIs on Recalcitrant Accounts PFFI must report separately the aggregate number and total value of recalcitrant accounts in each of the following categories – Recalcitrant accounts that have US indicia – Recalcitrant accounts that lack US indicia – Recalcitrant accounts that are dorma
Slide 31: Form 1042-S Recipients
Form 1042-S Recipients All withholding agents must report on Form 1042-S to the following types of recipients – PFFI or DCFFI, even if acting as an intermediary – NPFFI that is a beneficial owner – A PFFI accountt holder h ld if the th PFFI does d nott have h withholding ithh ldi responsibility ib
Slide 32: Amounts Reportable on Form 1042-S
Amounts Reportable on Form 1042-S Reportable amounts by all withholding agents – US source FDAP income paid after 12/30/2013 whether or not subject to withholding – Gross proceeds from the sale or redemption of US securities that are subject to withholding after 2014 – Foreign F i passthru th paym
Slide 33: FATCA Reporting Timeline
FATCA Reporting Timeline First Reporting Type Tax Year Due Date Recalcitrant Account Reporting (With US Indicia, Without US Indicia, 2013 30 September and Dormant) 2014 US Accounts (Name, Address, Account Number, Account Balance or Value) 2013 and 2014 2014 and 2015 Income for US Accounts Must Also
Slide 34: efficiency, renewable energy & mitigation
IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have bee