Final Proposed FATCA Regulations Issued

The U.S. Treasury Department ("Treasury") and the Internal Revenue Service ("IRS") on February 8, 2012 issued proposed regulations addressing the implementation of the Foreign Account Tax Compliance Act ("FATCA," which was enacted as part of the Hiring Incentives to Restore Employment Act on March 18, 2010). For a brief overview of FATCA, please refer to our prior releases on the subject from February 2012 entitled "FATCA Update for Latest Government Guidance" or from April 2010 entitled "Recent Enactments Affecting Offshore Funds Attack Offshore Tax Abuses, Raise Taxes on Investment Income and Gains". The proposed regulations, which are nearly 400 pages in length, provide detailed guidance on the U.S. account identification, withholding and information reporting requirements which foreign financial institutions ("FFIs"), other non-financial foreign entities ("NFFEs") and U.S. withholding agents are subject to under FATCA. Throughout 2010 and 2011, Treasury and the IRS issued preliminary guidance with respect to the implementation of FATCA in a series of notices (collectively, the "FATCA Notices"). Public comments with respect to the FATCA Notices were considered by Treasury and the IRS in developing the proposed regulations and the proposed regulations in certain cases amend, revise or eliminate the preliminary guidance that was provided under the FATCA Notices. The proposed regulations make progress in eliminating, reducing or delaying the impact of FATCA on many investment funds and financial institutions, but for entities not otherwise exempt from FATCA, the burdens associated with FATCA still remain.

New Intergovernmental Approach to FATCA Implementation in Certain Jurisdictions

In conjunction with the issuance of the proposed regulations, Treasury released a joint statement with France, Germany, Italy, Spain and the United Kingdom (the "Joint Statement") regarding the adoption of an intergovernmental approach to FATCA to simplify FATCA's practical implementation, to reduce compliance burdens and costs associated with FATCA compliance, and to address legal restrictions that may prevent FFIs in these jurisdiction from complying with FATCA's reporting, withholding and account closure requirements. FATCA generally requires FFIs to enter into a comprehensive agreement with the IRS (an "FFI Agreement") whereby the FFI agrees to identify its accounts held by U.S. persons and report information with respect to those accounts to the IRS.

Under the intergovernmental approach set forth in the Joint...

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