FATCA - An Overview

Author:Mr Kevin Murphy, Sarah Cunniff and Dara Harrington
Profession:Arthur Cox


The Foreign Account Tax Compliance Act (known as "FATCA") was signed into law on 18 March 2010.

The main purpose of FATCA is to ensure the US Inland Revenue Service ("IRS") can identify and collect tax from US citizens and residents holding financial assets outside the US.

Who is within scope?

FATCA will apply to all foreign financial institutions ("FFIs"). The definition of FFIs in the legislation is broad and includes investment funds, hedge funds, private equity funds, securitisation vehicles, custodians and banks.

FATCA will also apply to certain nonfinancial foreign entities ("NFFEs") which are foreign entities with one or more substantial US owners (a US person that owns more than 10% of the vote or value of the NFFE).

What is its impact?

FATCA provides for a 30% withholding tax on certain payments (such as US source interest and dividends) made to FFIs. The same 30% withholding tax will also apply to gross sale proceeds from the sale of relevant US property.

Generally, FFIs can avoid the 30% withholding tax by agreeing with the IRS to disclose certain information on US accounts.

IGA / Registration with the IRS

In December 2012, an intergovernmental agreement ("IGA") was signed between the US and Ireland to facilitate the implementation of FATCA. The IGA simplifies the process for entities resident in Ireland by providing for automatic reporting and exchange of information in relation to accounts held in Irish financial institutions (including certain collective investment schemes domiciled in Ireland) by US persons and the reciprocal exchange of information regarding US financial accounts held by Irish residents.

Provided the Irish financial institution ("Irish FI") complies with certain due diligence requirements and reports prescribed information to the Revenue Commissioners in Ireland (the "Revenue Commissioners") it will be relieved of the burden of entering into an agreement with, and reporting directly to, the IRS, and will not need to impose the 30% US withholding tax on US sourced income.

The Revenue Commissioners are in the process of finalising their "Financial Accounts Reporting Regulations" (the "FATCA Regulations") and supporting draft guidance notes on the implementation of FATCA in Ireland which, once finalised, will provide further clarity on reporting.

Notwithstanding the IGA, under the draft FATCA Regulations Irish FIs (including Irish collective investment schemes funds) will be required to register with...

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