News:

Impact of the FATCA Proposed Regulations on Capital Markets Transactions:

I. Background

On February 8, 2012, the United States Department of the Treasury and Internal Revenue Service released proposed regulations implementing sections 1471 through 1474 of the Internal Revenue Code (commonly called “FATCA”). [1] The proposed regulations would impose reporting and withholding obligations on “foreign financial institutions” (or “FFIs”) that enter into an “FFI agreement.” Under the proposed regulations, starting in 2014, FFIs that do not enter into an FFI agreement would be subject to a 30% withholding tax on U.S.- source interest, dividends, and other types of passive income (“FDAP income”). The proposed regulations defer imposition of a withholding tax on gross proceeds from the sale of property producing U.S.-source dividends and interest until 2015. [2]

A more detailed discussion of the proposed regulations is included in our February 15, 2012, Alert Memo “Treasury and the IRS Release Proposed Regulations under FATCA and a Joint Statement with Other Countries Regarding an Intergovernmental Approach to FATCA Implementation” (available here). This summary highlights certain provisions of the proposed regulations that are relevant to capital markets transactions.

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