The long-awaited proposed tax regulations for FATCA, the Foreign Account Tax Compliance Act, were issued February 8 by the IRS. An electronic copy is available at http://www.irs.gov/pub/newsroom/reg-121647-10.pdf .
FATCA imposes new disclosure obligations on foreign financial institutions that maintain U.S. accounts, and on certain non-financial foreign entities; and FATCA establishes new requirements to withhold U.S. tax from payments to foreign financial entities and non-financial foreign entities that do not comply with the FATCA disclosure and reporting requirements.
In regard to FATCA compliance by foreign financial entities, the U.S. Department of Treasury has announced that mutual intergovernmental assistance is anticipated among the United States, France, Germany, Italy, Spain and the United Kingdom in combating international tax evasion, and the U.S. is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in U.S. financial institutions by residents of those countries.
In regard to FATCA compliance by non-financial foreign entities (NFFEs), the regulations propose a certain “active NFFE” exception which would be determined through a certification that 50 percent or more of its gross income for the calendar year is from the active conduct of a trade or business, as opposed to being “passive income” and less than 50 percent of its assets are assets that produce or are held for the production of dividends, interest, rents and royalties, annuities, or other passive income.
On May 15, the IRS will hold a public hearing on these lengthy and complex proposed regulations.