This update is a follow-up to our May 6, 2010 publication, HIRE Act of 2010 - Increases Need for International Tax Compliance, with respect to the new information reporting obligations for foreign financial institutions (FFI), including pooled investment vehicles. 

General Considerations

On February 8, 2012, the Treasury Department and the IRS issued proposed regulations (“Proposed Regulations”) under Sections 1471 through 1474 of the Internal Revenue Code of 1986 (as amended)(the “Code”), enacted as part of the Foreign Account Tax Compliance Act (FATCA) provisions of the Hiring Incentives to Restore Employment Act of 2010 (the “HIRE Act”). In general, the Proposed Regulations:

• Extend the date (now January 1, 2014) beginning on which U.S. withholding agents will have to withhold the 30% tax with respect to certain payments of U.S. source income such as dividends and interest to FFIs;
• Extend the date on which “Participating FFIs” must withhold tax on certain “passthru payments” until January 1, 2017; and
• Provide a simplified approach for FFIs in countries (“FATCA Partners”) that would agree to collect U.S. account information from FFIs and automatically transfer the information to the IRS. 

France, Germany, Spain, Italy and the United Kingdom, all of whom have bilateral tax treaties in effect with the United States, agreed to cooperate in forging an approach toward adopting a common model for automatic information exchange, including the development of reporting and due diligence standards. With respect to France, Germany, Spain, Italy and the United Kingdom, the information exchange will be mutual; therefore, U.S. financial institutions will be required to collect and remit data on their customers who are citizens of, or resident in, those countries.

Please see full update below for more information.