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FATCA Updates - April 2019
- 2. CONFIDENTIAL © Sia Partners 2 Overview of the latest FATCA Proposed Regulations Internal Revenue Service and U.S. Department of the Treasury On December 13, 2018, the Internal Revenue Service (“IRS”) and the U.S. Department of the Treasury (the ”Treasury”) issued proposed regulations (“Proposed Regulations”) that provide significant relief from potential withholding and compliance burdens in connection with FATCA. . § The Proposed Regulations eliminate entirely withholding on gross proceeds from the sale or other disposition of property of a type that can produce interest or dividends from U.S. sources (such as a sale of stock or a debt instrument of a U.S. issuer). In addition, issuers of debt or equity (including issuers in capital markets transactions, as well as private investment fund sponsors) will no longer need to address this potential withholding requirement in disclosure documents or otherwise. § The Proposed Regulations clarify that an entity will not be treated as an "investment entity" solely because it invests into a mutual fund or other pooled investment vehicle (i) that is widely held, and (ii) where the financial institution offering interests in the vehicle does not have specific discretionary authority over the entity's investment. (For example, if the mutual fund offers shares to the public generally without a tailored investment mandate). § This change clarifies a question taxpayers had regarding when a vehicle investing in public funds could become subject to FATCA (solely by reason of those investment activities) Elimination of Withholding on Payments of Gross Proceeds Clarification of the Definition of Investment Entity 1 2
- 3. CONFIDENTIAL © Sia Partners 3 Deferral of Withholding on Foreign Pass-Through Payments § As a result of the success of Intergovernmental Agreements (“IGAs”), which allow the IRS and foreign governments to report U.S. citizen accounts, the IRS and Treasury determined the impending requirement for foreign financial institutions to withhold on certain pass-through payments is also not currently necessary at this time. § This withholding requirement is deferred until two years after the publication of final regulations that define the term “foreign pass-through payment.” § A withholdable payment does not include “excluded nonfinancial payments,” such as services income, office and equipment leases, and software licenses. § As a result of the expanded foreign reporting requirements under other provisions of the Tax Cuts and Jobs Act, the IRS and Treasury amended the definition of a “nonfinancial payment” to also include premiums for insurance contracts that do not have cash value. § Under the proposed regulations documentary evidence provided by an account holder, whose only address is subject to a hold mail instruction and who is not claiming a treaty benefit, is any documentary evidence that supports the person’s claim of foreign status. For persons making treaty claims, however, the documentary evidence provided must continue to support the person’s claim of residence in the specific country for which the treaty benefits are being claimed. § The proposed regulations further clarify that a person’s request to receive all correspondence electronically, including account statements, does not constitute a hold mail instruction. Elimination of Withholding on Non-Cash Value Insurance Premiums Revised Treatment of “Hold Mail” instructions under FATCA 3 4 5 Overview of the latest FATCA Proposed Regulations Internal Revenue Service and U.S. Department of the Treasury
- 4. CONFIDENTIAL © Sia Partners 4 Reliance on Proposed Regulations Taxpayers may rely on the proposed regulations until the final ones are issued except in the following instances: § Elimination on withholding of non-cash value premiums; § Clarification of the definition of managed by investment entity; and § Revised allowance for a permanent residence address subject to hold-mail instructions.