FATCA Proposed Legislation Enacted as Part of HIRE Act


On March 18, 2010, the President signed into law the Hiring Incentives for Restoring Employment Act (H.R. 2847) (“HIRE Act”), which incorporated the anti-avoidance revenue provisions previously contained in the proposed Foreign Account Tax Compliance Act (“FATCA”). While the goal of the FATCA provisions in the HIRE Act is to prevent U.S. persons from hiding their identities behind foreign corporations, trusts, foundations, and other types of foreign entities, those provisions potentially will have a far-reaching effect on both U.S. payors and the foreign recipients of covered amounts. (For prior discussions of the FATCA provisions, see the following Sutherland Legal Alerts: December 11, 2009; November 10, 2009.)

Generally, the FATCA provisions of the HIRE Act will require 30% withholding on payments of specified amounts made to certain foreign entities if the owners of “United States accounts” in such entities are not identified by the foreign entities. The HIRE Act, like the proposed FATCA legislation, also generally repeals the exceptions to the registration requirement for bearer bonds, which means that interest paid on bearer bonds issued after the effective date generally will not be deductible by the issuer and will be subject to a 30% withholding tax unless the recipient can qualify for an exemption other than the portfolio interest exemption (e.g., treaty benefits).

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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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