The United States Treasury and the Internal Revenue Service (IRS) have stated
their intent to issue guidance on the reporting requirements imposed on foreign
financial institutions (FFIs) by the enactment of the Foreign Account Tax Compliance
Act (FACTA) on March 18, 2010 within the Hiring Incentives to Restore Employment
(HIRE) Act.
They are requesting public comments on the priority issues they have identified
in the preliminary guidance on the application of the FACTA. The legislation
makes a number of changes to tax law affecting individuals with foreign bank
accounts and assets held abroad.
The FACTA provisions of the HIRE Act add a new chapter 4 to Subtitle A of the
Internal Revenue Code. Chapter 4 expands the information reporting requirements
imposed on FFIs, as defined in the proposed guidance, with respect
to accounts held abroad by US residents.
FFIs are required to deduct and withhold a tax equal to 30% of the amount of
any payment to an FFI unless the FFI agrees to disclose the identity of the
US residents and report on their bank transactions. The IRS intends to publish
a draft FFI Agreement and draft information reporting and certification forms,
which will be electronically filed.
The name, address and taxpayer identification number (TIN) is required of each
account holder which is a specified US person; and, in the case of any account
holder which is a US-owned foreign entity, the name, address, and TIN of each
substantial US owner of such entity. The account number is also required to
be provided, together with the account balance or value, and the gross receipts
and gross withdrawals or payments from the account.
To facilitate this process, the Treasury and the IRS contemplate that the
IRS will issue employer identification numbers (EINs) to participating FFIs
and that participating FFIs will use these EINs to identify themselves to withholding
agents.
Chapter 4 is generally effective for payments made after December 31, 2012,
and any US resident who holds more than USD50,000 in a depository or custodial
account maintained by an FFI is required to report on any such account under
this legislation.
The Treasury and the IRS intend to issue definitive guidance in advance of
that effective date to ensure that affected FFIs have time to implement the
systems and processes necessary to comply fully with the new withholding, documentation,
and reporting obligations imposed.
An FFI is defined as any financial institution which is a foreign entity, and
which accepts deposits in the ordinary course of a banking or similar business;
holds financial assets for the account of others as a substantial portion of
its business; and/or is engaged primarily in the business of investing, reinvesting,
or trading in securities, partnership interests or commodities.
However, there are categories of business which have been excluded for having
to report or withhold under the FACTA. These include certain holding
companies, start-up FFIs for the first 24 months of their operation, hedging/financial
centres of a non-financial group, and the issuers of insurance contracts that
have no cash value.
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