February 12, 2015
By: Jennifer C. Ruz
The Foreign Account Tax Compliance Act, better known as “FATCA,” was enacted as part of the United States’ effort to combat tax evasion, specifically by U.S. persons hiding taxable funds in offshore accounts. Part of the requirements of FATCA have already been in place for a few years, primarily the requirement for U.S. individuals with foreign financial assets to report those assets on a Form 8938, Statement of Specified Foreign Financial Assets, which is attached to their individual income tax return. Beginning now in 2015, foreign financial institutions (a new term of art under the Internal Revenue Code and treasury regulations thereunder), will also have to report information directly to the IRS regarding foreign financial accounts held directly or indirectly by U.S. persons. The failure to comply with these new reporting requirements is an additional 30% withholding on any “withholdable payment.”
So, now that FATCA is here, what does that mean for you? Generally, a foreign person (juridical or otherwise) must determine its classification under FATCA and provide any required withholding forms to requesting foreign financial institutions. These withholding forms are, generally, Forms W-8BEN, W-8BEN-E, W-8IMY, W-9, etc. Additionally, certain foreign juridical entities (i.e., corporations, partnerships, trusts), may also need to determine their reporting requirements under FATCA. They must ask themselves, first, what is their classification, and second, what does not classification require them to report, if anything, to the IRS, and whether they otherwise need to register or enter into any agreements directly with the IRS. Additionally, they also need to determine what information, if any, they must request from their direct and indirect owners.
These questions are complicated, and require analysis, not only of the FATCA regulations, but also if any applicable Inter-Government Agreement (“IGA”), and its impact on the above questions. If you have an interest in a foreign corporation, partnership, or trust, or are otherwise being requested from a foreign entity to complete a U.S. withholding form, you should be thinking about FATCA and how it applies to you. The cost to the unwary is a potential 30% withholding, which may be avoided by simply providing the correct disclosures. For help with your FATCA needs, contact Jennifer Ruz at (305) 921-9326.