On Dec. 30, 2016, the government issued several final, temporary and proposed regulations related to information reporting and withholding obligations under the Foreign Account Tax Compliance Act (FATCA).
The most significant provision enacted as a part of FATCA is chapter 4 of the tax code, which includes Sections 1471 through 1474 and which generally requires foreign financial institutions (FFIs) and certain nonfinancial foreign entities (NFFEs) to report certain information about U.S. persons to the IRS.
On Jan. 28, 2013, the IRS and Treasury published final regulations under chapter 4. The latest package of regulations build on those 2013 regulations and subsequent guidance to clarify chapter 4 and its coordination with other parts of the code.
One set of final and temporary regulations (T.D. 9808
) finalizes, with minor modifications, certain proposed regulations under chapters 3 and 61 and Sections 871, 3406 and 6402, and withdraw corresponding temporary regulations. Specifically, the final regulations provide guidance on withholding of tax on certain U.S.-source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, and portfolio interest paid to nonresident alien individuals and foreign corporations.
The changes in the final regulations, which were previewed in a series of IRS notices, include, among other items:
- Modification of the certification requirements for foreign persons with U.S. branches treated as U.S. persons
- Modification of the effective date for reliance on electronic transmission of certificates, forms and documentations
- New rules for curing late documentation for claims that income is effectively connected with the conduct of a trade or business in the U.S.
Those final regulations under T.D. 9808 also include temporary regulations providing additional rules under chapter 3. The temporary regulations affect persons making payments of U.S. source income to foreign persons and serve as the text of concurrently issued proposed regulations (REG-134247-16
Another set of final and temporary regulations (T.D. 9809
) concerns information reporting by FFIs and withholding on certain payments to FFIs and other foreign entities under chapter 4. This set of final regulations finalizes, with certain modifications and clarifications, proposed regulations and withdraw temporary regulations. These final regulations include modifications and clarifications to:
- Several definitions of the terms including “branch,” “nonreporting IGA FFI,” “preexisting obligation,” etc.
- The requirement to deduct and withhold tax on withholdable payments to certain FFIs
- Identification and documentation requirements for withholding agents with respect to payees
In response to comments, the IRS and Treasury also released temporary regulations. These temporary regulations include revisions and clarifications to certain aspects of the 2013 regulations, including: (1) revision of the definition of “permanent residence address,” and coordination of rules for curing documentation errors, as well as other minor modifications and clarifications. These temporary regulations serve as part of the text of concurrently issued proposed regulations (REG-103477-14
The IRS and Treasury also released proposed regulations (REG-103477-14
) relating to verification and certification requirements for certain entities under chapter 4. The proposed verification requirements include:
Verification requirements and events of default for entities that agree to perform the chapter 4 due diligence, withholding and reporting requirements on behalf of certain FFIs or NFFEs
Certification requirements and procedures for IRS review of certain trustees of trustee-documented trusts and the procedures for the IRS’s review of periodic certifications provided by registered deemed-compliant foreign financial institutions
Procedures for future modifications to the requirements for certifications of compliance for participating foreign financial institutions
Requirements for certifications of compliance for participating FFIs that are members of two consolidated compliance groups.
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