Timeline For Initial FATCA Implementation Extended

The Treasury Department ("Treasury") and the Internal Revenue Service (the "IRS") announced on July 12, 2013 a general six-month extension to the timeline for initial implementation of the Foreign Account Tax Compliance Act or FATCA from January 1, 2014 to July 1, 2014. They also substantially improved coordination of the FATCA registration process with Treasury's ongoing efforts in negotiating intergovernmental agreements on FATCA.

Background

FATCA (contained in Sections 1471 through 1474 of the Internal Revenue Code) was enacted in 2010 in order to reduce perceived offshore tax evasion by US persons holding assets through offshore accounts that were not subject to US information reporting to the IRS. FATCA generally requires a foreign payee that is a foreign financial institution (an "FFI") either (1) to enter into an agreement with the IRS relating to such reporting (an "FFI Agreement", and such an FFI, a "Participating FFI") or (2) to comply with local laws that implement an intergovernmental agreement ("IGA"). If an FFI does not satisfy these requirements (and is not otherwise exempt), withholdable payments made to such FFI will be subject to withholding under FATCA at a rate of 30%. FATCA information reporting and withholding requirements generally do not apply to FFIs that are treated as deemed-compliant because they present a relatively low risk of being used for tax evasion or that are otherwise exempt or excepted from FATCA withholding.

On July 12, 2013, Treasury and the IRS issued Notice 2013-43 (the "Notice"), which, as described below, extends the period for entering into FFI Agreements and the date on which FATCA withholding will commence. Prior to the amendment of the final FATCA regulations (the "Final Regulations") to implement such extensions, taxpayers may rely on the Notice.

Timeline for Initial FATCA Implementation Generally Extended by Six Months

FATCA Withholding. Withholdable payments include: (1) US source interest, dividends, and other fixed or determinable annual or periodical ("FDAP") payments; (2) gross proceeds from the taxable disposition of property that produces US source interest or dividends; and (3) "foreign passthru payments," which generally are payments that are made by a Participating FFI and that are attributable to withholdable payments. Under the Notice, withholding, which had been scheduled to begin on January 1, 2014 under the Final Regulations, will now commence on July 1, 2014 for interest...