The Foreign Account Tax Compliance Act (“FATCA”), which was enacted as part of the Hiring Incentives to Restore Employment Act, ends the practice by U.S. issuers (and controlled foreign corporations) of selling bearer debt to foreign investors under “TEFRA C” and “TEFRA D” after March 18, 2012. As a result, debt issued after that date must be issued by U.S. issuers in registered form. FATCA codified Internal Revenue Service (“IRS”) Notice 2006-99, providing that debt obligations cleared through dematerialized book-entry systems would be treated as being issued in registered form. On March 7, 2012, the IRS released Notice 2012-20 (the “Notice”), which addresses, among others, (i) the circumstances under which certain bonds are treated as in registered form, and (ii) a temporary relief from the requirement to collect IRS Forms W-8 in order to qualify for the portfolio interest exemption from U.S. withholding tax on interest. The U.S. Treasury Department said it intends to issue regulations implementing the provisions included in the Notice.

The Notice states that a debt obligation will be considered to be in registered form for U.S. federal income tax purposes if the obligation is issued through (i) a dematerialized book entry system in which beneficial interests are transferable only though a book entry system maintained by a clearing organization (or its agent), or (ii) a clearing system in which the obligation is effectively immobilized.

Pursuant to the Notice, an obligation will be treated as immobilized if (i) the obligation is represented by one or more global securities in physical form that are issued to and held by a clearing organization (or its custodian or depository acting as its agent) for the benefit of purchasers of interests in the obligation under arrangements that prohibit the transfer of the global securities except to a successor clearing organization subject to the same terms, and (ii) beneficial interests in the underlying obligation are transferable only through a book entry system maintained by the clearing organization (or its agent).