Slide 1: Foreign Account Tax Compliance Act (FATCA)
Foreign Account Tax Compliance Act (FATCA) What We Know and Don’t Know Nicole Tanguy, Citi Phil Garlett, Burt, Staples & Maner LLP 11-12 July 2011
Slide 2: What is FATCA?
What is FATCA? a citi
Slide 3: The State of the Law
The State of the Law New Chapter 4 of the Internal Revenue Code (IRC) – Signed into law by President Obama on 3/18/2010 – Effective prospectively for payments made on or after 1/1/2013 Statute requires significant government guidance to be implemented – Treasury/IRS guidance is being published in wa
Slide 4: Treasury/IRS Guidance Needed
Treasury/IRS Guidance Needed What we need – Proposed regulations, a comment period and a public hearing Fall/Winter 2011? – Final regulations well before 12/31/2012 – IRS agreement for foreign financial institutions Will there be a draft for comment? – New tax certifications and/or revisions to Form
Slide 5: FATCA Basics
FATCA Basics Objective is to combat offshore tax evasion by U.S. persons who maintain directly or indirectly through ownership of non-U.S. funds – Accounts with foreign financial institutions – Investments in non-U.S. funds Foreign financial institutions and non-U.S. funds are referred to as foreign
Slide 6: FATCA Basics
FATCA Basics – Places reporting burden on the FFI that carries the U.S. accounts Unlike QI regime, FATCA does not presently permit an FFI to pass-up the reporting responsibility to an upper-tier financial institution (“FI”) Statute does allow for withholding responsibility to be passed to an upper-t
Slide 7: When Does FATCA Withholding Apply?
When Does FATCA Withholding Apply?
Slide 8: What Types of Payments Are Subject to Withholding?
What Types of Payments Are Subject to Withholding? The Role of Withholding – 30 Percent FATCA withholding (new Chapter 4 withholding) – A tool for enforcing expanded reporting or disclosure requirements – FATCA is an overlay on current U.S. nonresident tax and backup withholding If FATCA withholding
Slide 9: Grandfathered Obligations
Grandfathered Obligations Notice 2010-60: The term “obligation” means any legal agreement that produces or could produce withholdable payments but does not include: – An instrument treated as an equity for US tax purposes – An agreement that lacks a definitive expiration or term (e.g., savings depos
Slide 10: When Are Withholding Agents Required to Withhold Under FATCA?
When Are Withholding Agents Required to Withhold Under FATCA? When paid to FFIs, unless – the FFI enters into an agreement with the IRS (a participating FFI), or – the FFI is a deemed-compliant FFI – The FFI is treated as excluded (e.g. hedging centers of non-FFI groups) When paid to non-financial f
Slide 11: What is Subject to Withholding: Withholdable Payments and Pass-thru Payments
What is Subject to Withholding: Withholdable Payments and Pass-thru Payments U.S. FIs must withhold on “withholdable payments” paid to nonparticipating FFIs and non-excepted NFFEs Participating FFIs (but not USFIs) must withhold on “passthru payments” made to recalcitrant account holders and nonpart
Slide 12: Determining the PPP
Determining the PPP For custodial payments: – A custodial payment is made on a security issued by another entity held by an FFI as a custodian, broker, nominee or other agent – The PPP of the entity that issued the instrument is used for custodial payments For any other (i.e., non-custodial) payment
Slide 13: How Do Participating FFIs and USFIs Become FATCA Compliant?
How Do Participating FFIs and USFIs Become FATCA Compliant? Duties and Obligations
Slide 14: Duties of Participating FFIs
Duties of Participating FFIs To avoid 30 percent FATCA withholding, an FFI must enter an agreement with the IRS and perform the following tasks: – Obtain information necessary to determine if each account is a U.S. account – Comply with verification and due diligence procedures to be prescribed by T
Slide 15: Duties of Compliant USFIs
Duties of Compliant USFIs USFIs are withholding agents under FATCA if they have control, receipt, custody, or disposal of any “withholdable payment” USFIs must withhold 30 percent from a withholdable payment made to: – FFIs that are not participating FFIs or deemed-compliant FFIs – Participating FFI
Slide 16: What is a "Foreign Financial Institution" Under FATCA?
What is a "Foreign Financial Institution" Under FATCA?
Slide 17: What is a Foreign Financial Institution (FFI)?
What is a Foreign Financial Institution (FFI)? Under FATCA, the term FFI is quite broad Includes any foreign entity that – Accepts deposits in the ordinary course of a banking or similar business, – Conducts a “substantial” portion of its business in holding financial assets for the account of other
Slide 18: Potential Types of FFIs
Potential Types of FFIs Custodians Investment Vehicles Broker-dealers Mutual funds Clearing organizations Fund of funds Trust companies Exchange Traded Funds (ETFs) Custodial banks Hedge Funds Custodians of assets in employee benefit Private Equity Funds plans Venture Capital Funds Depositary Banks
Slide 19: Exclusions from FFI Definition
Exclusions from FFI Definition FI is a legal entity formed under U.S. law (includes foreign branches of U.S. banks) or a U.S. possession FI is the U.S. branch of a foreign bank Excepted foreign organizations – Foreign governments, Foreign central banks, International organizations, and entities that
Slide 20: Foreign Retirement Plans
Foreign Retirement Plans Notice 2010-60: Guidance will provide that certain foreign retirement plans pose a low risk of tax evasion and will be exempt from FATCA withholding May require that the retirement plan – (1) qualify as a retirement plan under the law of the country where established, – (2)
Slide 21: Insurance Companies As FFIs or NFFEs
Insurance Companies As FFIs or NFFEs Notice 2010-60: – Excludes from FFI definition Entities whose business consists solely of issuing insurance or reinsurance contracts that have no cash value (e.g., property and casualty or term life insurance) Excluded insurance companies become NFFEs required to
Slide 22: What is a Deemed-Compliant FFI?
What is a Deemed-Compliant FFI? Notice 2011-34 (Section III) – Proposes certain categories of FFIs that will need to: Apply to the IRS to be recognized as a deemed-compliant FFI Obtain a special FFI-EIN Re-certify every 3 years that the FFI continues to meet the requirements for a deemed-compliant F
Slide 23: Local FFI Members of Participating FFI Groups
Local FFI Members of Participating FFI Groups The IRS intends to treat any FFI member of a group that includes a participating FFI as a deemed- compliant FFI if: – The FFI member maintains no operations outside its country of organization – The FFI members does not solicit account holders outside it
Slide 24: Collective Investment Vehicles
Collective Investment Vehicles The IRS intends to treat collective investment vehicles as deemed-compliant if: – All holders of record of direct interests are: participating FFIs deemed-compliant FFIs, or Beneficial owners who are excluded foreign organizations – The fund prohibits the subscriptions
Slide 25: Exchange Traded Funds (ETFs)
Exchange Traded Funds (ETFs) An ETF is a collective investment vehicle whose interests are regularly traded on an established securities market IRS is considering under what conditions an non-U.S. ETF could be treated as a deemed-compliant FFI FFIs that issue only debt or equity interests that are p
Slide 26: Paying Agents and Transfer Agents
Paying Agents and Transfer Agents Many FFIs employ paying agents or transfer agents to act on their behalf in making payments to direct interest holders or maintaining an ownership registry A deemed-compliant FFI or a participating FFI is responsible for ensuring that the applicable requirements are
Slide 27: Qualified Intermediaries (QIs) and Withholding Flow-through Entities
Qualified Intermediaries (QIs) and Withholding Flow-through Entities Notice 2011-34 (Section V) – All FFIs that currently act as QIs will be required to consent to becoming participating FFIs, Unless the QI is a deemed-compliant FFI – Effective January 1, 2013 subject to transition rules not yet pro
Slide 28: Expanded Affiliated Groups of FFIs
Expanded Affiliated Groups of FFIs Notice 2011-34 (Section VI) – Statute: FATCA applies to every member of an FFIs expanded affiliated group – An expanded affiliated group includes corporations that are more than 50 percent owned directly or indirectly by a common parent, and Partnerships or other n
Slide 29: Coordinated Application Process
Coordinated Application Process Each FFI Group will need to designate a Lead FFI The Lead FFI will complete and sign the FFI application on behalf of itself and each FFI affiliate, and will provide – Specific information on each FFI affiliate – Evidence that each FFI affiliate has granted the Lead F
Slide 30: Centralization Compliance Option
Centralization Compliance Option For a participating FFI Group – members may designate an FFI in the Group as a Compliance FFI who will assume compliance oversight responsibility – Should U.S. shareholders of CFCs be Lead FFIs or Compliance FFIs? For collective investment funds – May allow centraliz
Slide 31: What is a U.S. Account?
What is a U.S. Account? ee citi
Slide 32: Classification of Accounts Under FATCA
Classification of Accounts Under FATCA FIs need to determine whether to treat – An individual account holder as a U.S. person or a foreign person (or a recalcitrant account of an FFI) a U.S. person A foreign financial institution (FFI) An excluded foreign organization (e.g., a foreign government) A
Slide 33: U.S. Owned NFFEs
U.S. Owned NFFEs An NFFE that has one or more “substantial” U.S. owners (other than excluded U.S. owners) is considered a U.S. owned NFFE Substantial ownership means more than 10 percent of: – Vote or value of a corporation’s stock – Profit or capital interest in a partnership – Any U.S. person that
Slide 34: Excluded U.S. Owners
Excluded U.S. Owners The following types of U.S. owners are NOT considered substantial U.S. owners of a NFFE – A corporation the stock of which is regularly traded on an established securities market and any of its affiliates – Any tax-exempt organization under IRC section 501(a) or an individual re
Slide 35: Account Documentation
Account Documentation ee citi
Slide 36: Account Documentation Issues
Account Documentation Issues 1. How will account opening procedures need to change to meet FATCA requirements? 2. Will an FI need to obtain additional information about new accounts? 3. Will an FI have to collect Forms W-8/W-9 from ALL its account holders? 4. Will an FI be able to continue to rely o
Slide 37: Preliminary Guidance on Documentation
Preliminary Guidance on Documentation Notice 2010-60 addresses how and when FFIs and USFIs must document account holders step by step – Distinguishes pre-existing accounts from new accounts – Distinguishes individuals from non-individuals – Tougher requirements if individuals have certain U.S. indic
Slide 38: Revisions to FFI Procedures for Pre-existing Individual Accounts
Revisions to FFI Procedures for Pre-existing Individual Accounts FFI may treat all deposit accounts with a year-end balance of $50K or less as non-U.S. accounts (even if documented as a U.S. account) FFI may treat custodial accounts with a year-end balance of $50K or less as non-U.S. accounts, unles
Slide 39: More Revisions to FFI Procedures for Pre-existing Individual Accounts
More Revisions to FFI Procedures for Pre-existing Individual Accounts List of U.S. indicia revised to – include U.S. place of birth and green cards, and – exclude P.O. box addresses outside the United States If an individual is born in the U.S. but is not a U.S. citizen, a written explanation of why
Slide 40: What Are the Information Reporting Requirements?
What Are the Information Reporting Requirements?
Slide 41: Annual Reporting for Each U.S. Account
Annual Reporting for Each U.S. Account Statute: requires a participating FFI to report – Name, address and TIN of each direct account holder that is a specified U.S. person – For each U.S. owned foreign entity, name, address and TIN of each substantial US owner of the entity – Account number – Accou
Slide 42: Reporting Developments
Reporting Developments Notice 2010-60: – IRS is developing a new information return – Electronic filing will be required – Account balance/value must be reported in USD Notice 2011-34 (Section IV): – Limits reporting on deposit and custodial accounts to year-end account balance/value (rather than th
Slide 43: Annual Report of Gross Receipts and Withdrawals
Annual Report of Gross Receipts and Withdrawals Notice 2011-34: Minimizes the FFI reporting burden – For deposit and custodial accounts, requires reporting of The gross amount of dividends, interest or other income paid or credited to the account; No reporting of accrued but unpaid income (e.g., OID
Slide 44: More on Reporting Gross Receipts and Withdrawals
More on Reporting Gross Receipts and Withdrawals Notice 2011-34 also requires: For interests in an FFI, reporting of : – All distributions, interest and similar credits – Each redemption payment For closed or transferred U.S. accounts, reporting of: – Income paid or credited up to transfer or closur
Slide 45: How to Prepare for FATCA
How to Prepare for FATCA SS citi
Slide 46: A Project Plan
A Project Plan Phase 1 – Impact Analysis – Identify all legal entities and business units in scope – Inventory existing procedures and systems capabilities Phase 2 – Gap Analysis – What are the gaps between present procedures and FATCA requirements? – Contingency: Need Treasury guidance Phase 3 – Im
Slide 47: Any Questions?
Any Questions? 37
Slide 48: Appendix
Appendix Sennen citi
Slide 49: Proposed Procedures for Classifying and Documenting Existing Entity Accounts
Proposed Procedures for Classifying and Documenting Existing Entity Accounts Step Required Actions Unless Due Date 1 Treat U.S. entities as reportable US accounts Entity is an excluded US entity type 12/31/2013 2 Conduct electronic search for entities organized under US Document as foreign entity or
Slide 50: Proposed Procedures for Classifying and Documenting Individual Accounts
Proposed Procedures for Classifying and Documenting Individual Accounts Step Identify Solicit Treat As When 1 Documented U.S. persons N/A US account Year 1 1a Deposit accounts with a year-end 2012 balance N/A Non-US account Year 1 of ≤ $50K (Optional) 2 Other accounts with a year-end 2012 balance of
Slide 51: Proposed Procedures for Classifying and Documenting Individual Accounts
Proposed Procedures for Classifying and Documenting Individual Accounts Step Identify Solicit Treat As When 4a Remaining accounts and perform electronic Form W-9 US account Year 1 search for U.S. citizens or residents 4b Remaining accounts and perform electronic Form W-9 or Form W-8BEN, government U
Slide 52: Finding the Tax Law
Finding the Tax Law The relevant FATCA provisions are in Title V, Subtitle A, Part I of the Hiring Incentives to Restore Employment Act (“HIRE”), Public Law 111-147 IRS Web site contains – A summary of key FATCA provisions – Notice 2010-60, dated 8/27/2010 – Notice 2011-34, dated 4/8/2011 – Links to
Slide 53: Disclaimer
Disclaimer IRS Circular 230 Disclosure: This presentation and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. The information contained herein is of a general nature and is based on authorities