Final Regulations Implementing the Foreign Account Tax Compliance Act (“FATCA”)


On January 17, 2013, the Internal Revenue Service (“IRS”) released final regulations (the “Final Regulations”) implementing the reporting and withholding provisions of the HIRE Act (commonly known as the Foreign Account Tax Compliance Act, or FATCA, provisions) that target noncompliance by U.S. taxpayers using foreign accounts. The Final Regulations build on proposed regulations published on February 15, 2012, and IRS notices to provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (“FFIs”), non-financial foreign entities (“NFFEs”), and U.S. withholding agents. As noted in our prior alerts, separate withholding regimes potentially apply to U.S. source payments to FFIs and NFFEs.

As FATCA implementation has evolved, greater emphasis has been placed on the role of intergovernmental agreements (“IGAs”). Since the proposed regulations were released, Treasury has collaborated with foreign governments to develop two alternative model IGAs that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation and compliance, reducing administrative burdens, and ensuring the participation of all FFIs in a partner jurisdiction. To date, Denmark, Germany, Ireland, Italy, Mexico, Norway, Spain, Switzerland, and the United Kingdom have signed or initialed IGAs and Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, with more signed IGAs expected to follow in the near future. The Final Regulations continue this trend, permitting IGAs to serve as an efficient and effective means of fostering international cooperation and implementing FATCA. In order to reduce administrative burdens for FFIs with operations in multiple jurisdictions, the Final Regulations coordinate the obligations for FFIs under the Final Regulations and the IGAs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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