FATCA Update

Notice 2011-34: Additional Guidance on the "Foreign Account Tax Compliance Act" Provisions

At a time in which the Foreign Account Tax Compliance ("FATCA") provisions of the "Hiring Incentives to Restore Employment Act of 2010" ('HIRE Act") have been coming under increasing criticism within the EU and Asia due to concerns that these provisions will result in significantly increased compliance costs for financial institutions, the IRS has released further guidance in the form of Notice 2011-34 (the "Notice").

The Notice generally supplements and expands on guidance issued last August in Notice 2010-60, which left a number of issues unresolved to be determined at the discretion of the IRS and the US Treasury. Some of these have now been clarified with the release of the Notice, but a number of significant issues remain unresolved including the proper treatment of trusts and trustees. Treasury and the IRS continue to work on proposed regulations and draft FFI agreements, but no specific release dates have been set.

Summary of Key Provisions

The Notice provides additional guidance with respect to six areas:

The procedures to be followed by participating Foreign Financial Institutions ("FFIs") in identifying US accounts among their pre-existing individual accounts. A new "private banking" category will require the disclosure of US citizen and green card account holders where the relationship manager or other personnel know of the account holder's US status; The definition of the term "passthru payment" and the obligation of participating FFIs to withhold on passthru payments have been expanded to generally require withholding on a portion of each payment to a recalcitrant account holder or non-participating FFI, even potentially where those account holders have no US investment whatsoever, except with respect to certain custodial payments; The categories of FFIs that will be "deemed compliant"; The manner, frequency, and type of information an FFI must report with respect to US accounts; The integration of duties of an FFI when it is also a Qualified Intermediary or Withholding Foreign Partnership or Trust under the Qualified Intermediary regime; and The application of the FFI regime to expanded affiliated groups. US Account Identification Procedures

The Notice modifies the procedures provided in Notice 2010-60. The changes introduced by the Notice with respect to the identification of account holders are generally favourable (with the important...