Law Offices of Simon Shen

May 2013, by Admin

FATCA will become effective January 1, 2014, so now it is time to prepare. FATCA impacts not only US persons (individuals or entities) but may also necessitate extra disclosure and compliance requirements of non-US entities and individuals.

The final FATCA regulations provide delayed time frames for various actions, among them include:

• Agreement with the IRS: Effective date will be December 31, 2013, for all participating FFIs that apply and receive a GIIN (Global Intermediary Identification Number) prior to January 1, 2014. It is recommended to file before 25 October 2013 to receive the GIIN in time.

• New account due diligence procedures commence January 1, 2014; accounts maintained prior to January 1, 2014 are pre-existing accounts

• Account holder documentation is delayed until December 31, 2015, for other than prima facie FFIs and high value individual account holders.

• First information reporting of US accounts on Form 8966: Before March 31, 2015, with respect to both fiscal years 2013 and 2014.

• Commencement of withholding: will not be required on foreign pass-through payments or on gross proceeds from sales or dispositions of property before January 1, 2017.

Note: These dates are for compliance with FATCA reporting and the commencement of withholding in general. There are different timelines for reporting different thresholds (starting from $50,000) and also for different types of accounts (existing, new, etc.).

April 19 2012 from STEP

The USA Internal Revenue Service (IRS) has published the final version of regulations setting out the reporting obligations of USA banks when they pay interest to non-resident foreigners.

The obligations are linked to the Foreign Account Tax Compliance Act (FATCA), which comes into force in January 2013. Although FATCA itself only obliges foreign banks to inform the IRS about the activities of American clients, the USA government has recognised that FATCA will not work unless USA banks operate a similar disclosure regime in reverse.

Thus the new regulation - TD 9584 (Guidance on Reporting Interest Paid to Non-resident Aliens) - forces USA banks to report to the IRS all interest payments they make to "non-resident aliens", even though these payments are not taxable in the USA. The IRS will then pass this information to the appropriate foreign tax authorities so that they can tax their citizens accordingly.

In this way the USA will encourage foreign governments' cooperation with FATCA. It has already received undertakings from the five largest European economies (Germany, France, Italy, Spain and the UK) that they will force their financial institutions to operate such reciprocal reporting schemes. Canada is believed to be negotiating a similar deal.

As a safeguard, the IRS has promised it will not pass on any information to jurisdictions with whom it does not already have a tax information exchange agreement.

Feb 12, 2012 by Admin

The five largest European countries have signed an agreement to help the US government implement the Foreign Account Tax Compliance Act when it comes into effect in January 2013.

FATCA requires foreign financial institutions (FFIs) to report all their American clients' dealings to the US Internal Revenue Service. They must also block payments to American clients and to other FFIs if ordered to do so by the IRS, and must close accounts belonging to individuals regarded by the USA as delinquent. Banks that refuse will see 30 per cent tax deducted from their earnings from US investments.

This week the governments of Germany, France, Spain, Italy and the UK agreed to collect this client account information from banks within their borders and pass it on to the US tax authorities on the banks' behalf. They may also have to amend their own data protection laws.

The joint statement issued by the six governments commits the European countries to implement legislation "requiring" FFIs in their jurisdiction to collect FATCA information on bank clients. It is not clear whether banks will be permitted to opt out of this scheme if they elect not to comply with FATCA. The joint statement suggests that they will not be, although certain types of low-risk financial institution in the five jurisdictions will automatically be presumed by the IRS to be FATCA-compliant anyway.

Banks in these five countries that agree to check for American beneficial ownership of assets and to supply this information to their domestic governments will be treated by the IRS as compliant with FATCA. They will not have to sign an agreement with the IRS (although they will have to register with it) and they will not be subject to the 30 per cent withholding tax imposed by the IRS on non-FATCA-compliant banks. Nor will they be required to block payments to "recalcitrant" individuals, or collect US withholding taxes from other banks in the jurisdiction.

In return the USA has committed itself to collect information on US bank accounts operated by European residents and automatically pass it to the relevant national tax authority. This so-called "reciprocity" arrangement would be based on the countries' existing bilateral tax treaties.

The European Commission issued a statement approving the agreement. It noted that FATCA compliance could have cost European multinational banks as much as $100 million if they had had to achieve it individually. The Commission also encouraged other EU member states to come to similar arrangements with the USA: "Any member state that wants to should now be able to adopt this government-to-government approach to information exchange through coordinated bilateral agreements with the USA", it said.

Sources: US Treasury Department

July 20, 2011 by Admin (from IRS Notice 2011-53)

The US government has postponed implementation of the Foreign Account Tax Compliance Act (FATCA).

Enacted last year as part of the HIRE Act, FATCA requires all foreign banks (and any other type of financial institution) to record all payments of interest or other income to US persons, and report them to the US Internal Revenue Service. The aim is, of course, to ensure that US citizens pay tax on all foreign income.

Any bank or investment fund that refused to comply would face a 30 per cent withholding tax on interest payments, dividends or other investment income earned in the USA. Moreover, foreign banks would also have to agree to impose the withholding tax on other foreign banks on the IRS's behalf - meaning that payments between non-US institutions would be subject to US tax.

The FATCA reporting obligations were scheduled to come into force in January 2013. However, the US government has come under heavy pressure from foreign governments to water down its provisions, because of the compliance burden they would place on financial institutions. Many financial institutions have said they would refuse deal with American clients, or would disinvest in American securities, rather than comply with FATCA. FATCA is already causing foreign banks and investment funds to turn away US clients.

Late last week, the US Treasury caved in and issued a notice putting the schedule back by a year. The reporting requirements will begin in 2014, not 2013. Withholding tax on dividends and interest will also be delayed until January 2014, while withholding tax on gross proceeds of asset disposals will be postponed until January 2015.

Announcing the postponement, IRS Commissioner Doug Shulman admitted that implementing FATCA was "a major undertaking for financial institutions."

However, FATCA's special due diligence requirements (which require banks to identify certain "high-risk" US accounts worth more than $500,000) will begin in 2013. And foreign banks will have to notify the IRS by June 2013 whether they intend to comply with the FATCA regime. Any who do not will be assumed to be non-compliant and will be subject to the withholding tax.

August 2010 by Admin 

FATCA requires certain foreign financial institutions (“FFI”) to disclose significant information to the Internal Revenue Service (the "IRS") regarding their "U.S." investors.  It generally imposes a 30 percent withholding tax on any withholdable payment made to an FFI, unless an agreement is in effect between the FFI and the IRS (generally applies after December 31, 2012), pursuant to which the FFI agrees:

• To obtain such information regarding its account holders as is necessary to determine which (if any) accounts are "United States accounts"
• To comply with IRS verification and due diligence procedures with respect to the identification of United States accounts
• To report annually certain information (i.e., certain identifying information, account balances, and gross receipt and gross withdrawals or payments from the account) to the IRS for each United States account maintained by the FFI
• To withhold 30 percent on any withholdable payments made to a recalcitrant account holder (i.e., generally, any account holder that fails to provide the FFI with information necessary for the FFI to comply with its agreement with the IRS), and other FFIs that do not enter into agreements with the IRS
• To comply with IRS information requests with respect to the FFI's United States accounts
• Where foreign law would otherwise prohibit the reporting of the required information, to attempt to obtain a waiver of such law and if a waiver is not obtained within a reasonable period of time, to close the account

August 2010 by Admin

Under FATCA, U.S. taxpayers who hold any interests in specified foreign financial assets during the tax year must attach their tax returns for the year certain information with respect to each asset if the aggregate value of all assets exceeds $50,000.  An individual who fails to furnish the required information is subject to a penalty of $10,000.  An additional penalty may apply if the failure continues for more than 90 days after a notification by the IRSto a maximum of $50,000.  The penalty may be avoided if the Taxpayer shows a reasonable cause for the failure to comply.

The Joint Committee on Taxation, Technical Explanation of the Hiring Incentives to Restore Employment Act (JCX-4-10) clarifies that although the nature of the information required to be disclosed is similar to the information disclosed on an FBAR, it is not identical. For example, a beneficiary of a foreign trust who is not within the scope of the FBAR reporting requirements because his interest in the trust is less than 50%, may still be required to disclose the interest with his tax return if the $50,000 value threshold is met.  In addition, this provision is not intended as a substitute for compliance with the FBAR reporting requirements which remain unchanged.

Under the HIRE Act, a specified foreign financial asset includes:

1. Any depository, custodial, or other financial account maintained by a foreign financial institution, and

2. Any of the following assets that are not held in an account maintained by a financial institution:

a. Any stock or security issued by a person other than a U.S.Person
b. Any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. Person, and
c. Any interest in a foreign entity (IRC §6038(D)(b) as added by the 2010 HIRE Act).

The information required to be disclosed with respect to any asset must include the maximum value of the asset during the tax year. For a financial account, the Taxpayer must disclose the name and address of the financial institution in which the account is maintained and the number of the account. In the case of any stock or security, the disclosed information must include the name and address of the issuer and such other information as is necessary to identify the class or issue of which the stock or security is a part.

August 2010 by Admin

Under FATCA, a U.S. Person who is treated as the owner of any portion of a foreign trust under the grantor trust rules, must submit any information required by the IRS with respect to the foreign trust.  This requirement to supply information about the trust applies to tax years beginning after March 18, 2010.

The current reporting obligations of the foreign trust include making a return for the year and providing certain information to each U.S. Person who is treated as the owner of any portion of the trust, or who receives a direct or indirect distribution from the trust (IRC §6048(b)(1)(A) and (B)).

August 2, 2010 by Admin

Under FATCA, the uncompensated use of foreign trust property by a U.S. Grantor, a U.S. Beneficiary, or a U.S. Person related to either of them is treated as a distribution by the trust for non-grantor trust income tax purposes (which also includes the loan of cash or marketable securities by a foreign trust or the use of any other property of the trust).

If a foreign trust permits the use of any trust property by a U.S. Grantor, a U.S. Beneficiary, or any U.S. Person related to either of them, the fair market value of the use of such property is treated as a distribution by the trust to the Grantor or Beneficiary. This treatment does not apply to the extent that the trust is paid the fair market value of such use within a reasonable time.  If distribution treatment does apply to the use of trust property, the subsequent return of such property is disregarded for federal tax purposes.