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The IRS extends FATCA’s Withholding Requirements

On September 18, 2015 the Department of Treasury and the IRS announced the intent to amend regulations relating to FATCA’s withholding rules to extend the following:

  • The date for when withholding on gross proceeds and foreign passthru payments will begin
  • The use of limited branches and limited foreign financial institutions (limited FFIs)
  • The deadline for a sponsoring entity to register its sponsored entities and re-document such entities with withholding agents

In order to reduce compliance burdens on withholding agents who hold collateral as a secured party, the Treasury and the IRS also FATCAWithholdingintend to amend the regulations to modify the rules for grandfathered obligations with respect to collateral.

The transitional rules provided in the notice are intended to facilitate an orderly transition for withholding agents and FFIs regarding FATCA compliance and respond to comments regarding how the phase-out of transitional rules may affect information reporting and withholding systems.

This notice also provides additional time for withholding agents and FFIs to modify their systems in stages as necessary to address the phase-out of the above-mentioned transitional rules consistent with the information reporting and compliance objectives of FATCA.

Finally, the notice provides details on the exchange of information by Model 1 IGA jurisdictions with respect to 2014.

Specifically, the IRS and Treasury intend to amend the FATCA withholding regulations to extend the start date of gross proceeds withholding by defining “withholdable payment” as any payment of US source FDAP income occurring after December 31, 2018.  This extended date will also apply to any gross proceeds from the sale or other disposition of any property that can produce interest or dividends that are US source FDAP income.

The regulations will also be amended to extend the start date of withholding on foreign passthru payments saying that a participating FFI is not required to withhold tax on a foreign passthru payment made to a recalcitrant account holder or a non-participating FFI before the later of January 1, 2019 or the date of publication in the Federal Register of final regulations defining the term foreign passthru payment.

Additional rules are provided for entities in jurisdictions in the process of implementing IGAs or in jurisdictions that have not yet begun negotiations relating to an IGA.

If you have any questions about FATCA or your responsibilities for FATCA compliance, please contact us.

The full Notice can be read at:  http://www.irs.gov/pub/irs-drop/n-15-66.pdf




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