On February 8, 2012, the Internal Revenue Service (IRS) and Treasury Department released long-awaited proposed regulations on a set of statutory rules commonly referred to as the Foreign Account Tax Compliance Act rules (or, FATCA).
In general, the proposed regulations do expand and clarify previous guidance and demonstrate responsiveness to comments by easing the burdens of compliance. Moreover, a FATCA establishes a new information reporting regime to identify U.S. persons holding assets through offshore entities and overseas accounts. Non-compliance with FATCA generally leads to a 30% withholding tax on most U.S. source income and, potentially, on all or a portion of non-U.S. source income. The FATCA regime institutes significant changes not only for offshore entities (such as non-U.S. funds and banks) but also for U.S. entities (such as U.S. private investments funds, regulated investment companies and U.S. banks) that will be required to implement the new FATCA reporting and withholding procedures. FATCA’s broad reach, its high implementation costs, and questions regarding compliance feasibility have raised significant concerns across industries, with many hoping that the proposed regulations would clarify and ease some of the compliance requirements.
Joint Statement by the Treasury Department and five European countries released simultaneously with the proposed regulations outlines an alternative intergovernmental approach intended to implement FATCA’s objectives without creating local law conflicts. The proposed regulations provide guidance on a wide range of issues that allows entities to evaluate how they will be affected and to begin adopting appropriate policies and procedures in time to ensure compliance with FATCA.
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