The U.S. Treasury Department (the Treasury) on February 8 released proposed regulations and a related groundbreaking announcement regarding the recently enacted tax legislation called the Foreign Account Tax Compliance Act or FATCA. FATCA’s purpose is to flush out the identity of U.S. investors who may be trying to avoid payment of U.S. taxes by investments channeled through offshore accounts with non-U.S. banks or financial institutions. FATCA has caused a great deal of controversy and concern in the financial sector due to the potentially burdensome requirements it may place on non-U.S.banks and financial institutions. A failure to comply with FATCA could subject those entities to a new 30% U.S. withholding tax.

Some of the highlights of the Treasury’s latest action are as follows:

• The Treasury Department announced a joint program with the UK, France, Germany, Spain and Italy to address compliance with FATCA. Banks and foreign financial institutions in those countries would be relieved of their FATCA reporting responsibilities with the U.S. Internal Revenue Service (IRS), which their governments would handle. This is an unprecedented move that may be a welcome relief for residents of those countries, but the details of the program are still being developed.
• A delay in some of the effective dates for implementation of FATCA. Previously, the Treasury delayed implementation of FATCA until 2014 (with some added delays for portions of the legislation).Yesterday, the Treasury, among other things, delayed until 2017 FATCA’s withholding tax imposed onso-called “pass-through payments” received by financial institutions, which adds some breathing room to work out this very complex provision.
• Expanded scope of deemed compliant foreign financial institutions that are not subject to theextensive reporting burdens otherwise imposed by FATCA. A significant change is that if a fund isregulated under local law, then the fund can be deemed compliant if its distributors meet certain requirements. This shift should allow more funds to meet this status.

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