Presented by Jon Kutner, hyperWALLET General Counsel, at the 2014 DSA Global Regulatory Conference. The Foreign Accounts Tax Compliance Act (FATCA) should be on the radar screen of every DSA member company. This presentation will begin with a background on the legislation and how it is being implemented globally, followed by a summary of how the FATCA rules interact with Section 1441/Non-resident alien withholding rules affecting DSOs paying distributors in foreign countries. The presentation will also cover FATCA issues affecting DSOs with business entities in foreign countries, and provide some suggestions for multinationals to prepare for FATCA due diligence requests from their foreign financial institutions.

1. Foreign Account Tax
Compliance Act (FATCA)
+1.604.482.0090 | jkutner@hyperwallet.com | www.hyperwallet.com
October 15, 2014
Presented by: Jonathan Kutner
General Counsel
hyperWALLET Systems Inc. | Suite 300, 950 Granville Street | Vancouver BC, Canada | V6Z 1L2

2. Outline
Discussion of FATCA in this presentation is from the broadest relevance to the most
narrow. Early topics are relevant to the largest number of attendees.
1) Background on FATCA
2) Payments to foreign payees
3) Application to multinationals
4) FATCA diligence and forms
Key takeaways:
1) If you have not already done so, familiarize yourself with withholding obligations
applying to Foreign distributors’ earnings and other international payments.
2) Confirm that your foreign banks and your foreign affiliates’ banks are FATCA
compliant.
3) Respond promptly and ensure your foreign affiliates respond promptly to
requests for withholding certificates (e.g., IRS Forms W-8BEN-E, W-8IMY).

3. FATCA Background
The Foreign Account Tax Compliance Act (“FATCA”) took effect July 1, 2014.
 Aim: Limit offshore tax evasion by requiring Foreign Financial Institutions
(“FFIs”) to report information regarding U.S. accountholders and owners.
 Who: Payers and non-U.S. recipients of U.S sourced fixed, determinable, annual or
periodical (“FDAP”) income (e.g., sales commissions from a U.S. company
under certain circumstances).
 How: Imposes a 30 percent penalty (FATCA tax). “Comply or else.”
 Intent: Is not to collect the FATCA tax, rather it is to force FFIs to report information
to the IRS regarding US accounts.
“COMPLY OR ELSE”

4. Payments to Foreign Payees
Taxation guidance relevant to MLMs was released October, 2013 (CCA 201343020):
 Foreign distributors’ earnings based on purchases by “lower-tier distributors” in
the MLM’s “sponsorship chain” constitute personal services income sourced
where the services are performed.
 U.S. MLM is required to withhold tax on such income paid to a foreign corporation
or non-resident alien (‘NRA”) for services performed in the United States.
 For MLM’s foreign distributors, there is often two sources of income:
o Buying products directly from MLM and reselling them to customers; or
o Down-line income from purchases by lower tier distributors in sponsorship chain.
 The CCA only addressed the second source, down-line income. According to the
guidance:
o The income represents compensation for services (recruiting, sponsoring, training etc.)
o The source of income is where the services are performed (can be reasonably split).

5. Payments to Foreign Payees
What does this mean for FATCA compliance?
o Sections 1441, 1442 require any person making a payment of U.S. source FDAP income to
a non-resident alien (NRA) or foreign corporation to withhold 30% of the gross income.
o In practical terms, payees with foreign accounts may only receive 70% of their payments.
o For Financial Institutions to withhold, they must know or have reason to know that the
payment is a withholdable payment.
Exemption:
o The regs provide a payment exemption for most effectively connected income. (e.g.,
foreign corporate distributors are exempt from withholding tax on U.S. source services
income as long as the foreign corporation provides a Form W-8ECI to you or your bank.)
o This exemption does not apply to individuals including non-resident aliens (NRAs).
Income tax treaties with foreign governments may modify the tax treatment:
o Many treaties make NRA personal services income, or foreign corporate distributor
income, exempt if there is no permanent establishment in the U.S.
o Non-resident alien (NRA) must provide a completed form 8233. Foreign corporate must
provide completed form W-8BEN to the US Taxpayer prior to payment.

6. Application to Multinationals
Who is a withholding agent?
 Any US entity paying US FDAP income or US source gross proceeds to an FFI or
Non Financial Foreign Entity (“NFFE”). NFFEs are ever so clearly defined as any
entity that is not an FFI.
 The definition is incredibly broad; nearly everyone is a withholding agent.
Multinationals must determine whether U.S. source vendor and other payments
are withholdable.
 FATCA tax applies to FDAP payments the U.S. entity sends to international
subsidiaries unless the payments go through an FFI that has an agreement with
the IRS to Identify and report on its “U.S. Accounts”.
 This can be confirmed on the IRS’ website.

7. Application to Multinationals
What is the FATCA status of your payees?
 Identifying payees:
o This is generally the person to whom the payment is made; HOWEVER
o For payments made to a financial account, the account holder is the payee.
 Determine FATCA status through reliance on IRS Forms:
o W-8 for foreign payees (W-8BEN-E for foreign entities)
o For some offshore obligations you may be able to rely on other written statements or
documentation (FFI’s GIIN, for example).
 Exceptions exist for certain payees and payments:
o NOTABLY: Participating FFIs.
o Deemed Compliant FFIs, Exempt beneficial owners, excepted NFFE… The list goes on.

8. Application to Multinationals
Mechanics: Your bank likely will confirm online that the foreign bank / entity is
registered with the IRS. If so, there should not be withholding of your
international payments.
No withholding
Possible
Withholding at 30%
Depending on the
IGA
No withholding
Withholding at 30%
Withholding
Agent
Payment Subject to
Withholding at 30%
Payment Not
Subject to
Withholding at 30%
FFI Complies with
FATCA
(participating)
FFI Does not
comply with FATCA
(non-participating)
FFI
NFFE certifies that
it does not have
over 10% US
ownership (They
give you a form!)
NFFE fails to certify
that
it does not have
over 10% US
ownership
NFFE

9. FATCA diligence
Be Proactive in your approach to FATCA:
 Diligently store and track all forms and documentation you receive.
 Submit reporting to the IRS (or risk penalties).
Identify whether any FFIs you bank with are non-compliant:
 Review your organizational chart for Foreign Subsidiaries.
 If your Foreign Subsidiaries or your U.S. Entity are banking with small foreign
institutions, confirm FATCA compliance. This may require additional confirmation,
such as checking their GIIN at the IRS website.
 Note, some foreign FFI’s are exempt, such as Canadian credit unions.

10. FATCA forms
 Each form is quite complex.
Understanding what you are
providing is key.
 Ex. Instructions for attached
form W-8BEN-E were not
released until June of 2014. This
is what a NFFE would use to
certify status.

11. FATCA forms
 There are W-8 and W-9 Forms that apply to a number of various situations.
Understand what you are asking for or providing.
 FATCA affects
 Intent: Prevent US individuals and businesses from

12. FATCA Fun Facts and Summary
FATCA does not apply to accounts transferred to a US person.
Withholding cannot apply if the parties in the payment chain do not know or have
reason to know that the payment is withholdable.
Withholding does not apply so long as everyone in the payment chain is FATCA
compliant or the payment is not a FATCA withholdable payment. Therefore, make
sure your foreign banks are FATCA Compliant Participating FFIs.
For example, if your U.S. entity transfers funds to its Canadian affiliate’s bank (a
Participating FFI), and the funds are for a variety of activities that include
withholdable payments, then the Canadian affiliate and its bank will provide the
appropriate withholding certificates to the appropriate banks to avoid withholding.
Financial Institutions and anyone else in the payment chain can avoid withholding if
they provide withholding certificates (e.g., IRS Forms W-8BEN-E, W-8IMY)
demonstrating FATCA compliance.
The lack of a GIIN will not trigger withholding if the FFI provides a withholding
certificate that indicates that the FFI has registered but has not received a GIIN.

13. Foreign Account Tax
Compliance Act (FATCA)
Presented by: Jonathan Kutner
General Counsel
+1.604.482.0090 | jkutner@hyperwallet.com | www.hyperwallet.com
hyperWALLET Systems Inc. | Suite 300, 950 Granville Street | Vancouver BC, Canada | V6Z 1L2