Tax Alert: FATCA to Significantly Alter Tax Reporting in 2013
February 2012: The Foreign Account Tax Compliance Act (FATCA) became law in March 2010 and will go into effect January 1, 2013. The policy rationale is to reduce U.S. tax evasion by improving the information available to the IRS about the offshore accounts of U.S. persons.
Proposed regulations to implement FATCA were issued February 8, 2012 by the IRS. FATCA’s goal is to require foreign financial institutions (“FFI”s) and all other non-financial foreign entities (“NFFE”s) to provide information to the IRS identifying U.S. persons invested in non-U.S. banks and securities accounts.
To achieve this goal, FATCA imposes a new 30% withholding tax on U.S. source interest, dividends and gross proceeds from the disposition of any property of a type that can produce U.S. source interest or dividends. In order to avoid this withholding tax, FFIs will need to either become a so-called “participating FFI” by entering into a disclosure compliance agreement with the IRS or otherwise meet certain requirements set out in the proposed regulations.
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