• Final FATCA Regulations Are Finally Here
  • February 18, 2013 | Authors: James E. Croker; Clay A. Littlefield; Edward Tanenbaum
  • Law Firms: Alston & Bird LLP - Washington Office ; Alston & Bird LLP - Charlotte Office ; Alston & Bird LLP - New York Office
  • On January 17, 2013, the U.S. Treasury and the IRS issued long-awaited final regulations under the Foreign Account Tax Compliance Act (FATCA) provisions in Code Sections 1471 to 1474 (also known as “Chapter 4”). Enacted as part of the Hiring Incentives to Restore Employment Act of 2010, FATCA generally requires foreign financial institutions (FFIs) to agree to report information on their U.S. account holders or else be subject to a 30-percent withholding tax on “withholdable payments” made to them-i.e., certain U.S. source income and payments of gross proceeds from the disposition of assets generating U.S. source dividends and interest. FFIs themselves must withhold 30 percent on “passthru” payments (i.e., withholdable payments and “foreign passthru” payments) made to nonparticipating FFIs and recalcitrant account holders. FATCA also imposes a 30-percent withholding tax on withholdable payments to nonfinancial foreign entities (NFFEs) that do not disclose their substantial U.S. owners. In addition to clarifying aspects of the proposed regulations, the final rules reflect a targeted, risk-based approach to limit Chapter 4’s scope and ease compliance burdens, while serving FATCA’s policy goal to combat international tax evasion by U.S. taxpayers through improved information reporting.