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FATCA Overview


FATCA or the Foreign Account Tax Compliance Act aims at identifying dishonest US taxpayers who have accounts at foreign (that is non-US) financial institutions. Taxand Luxembourg and other key speakers discussed the implications that the new FATCA regulations will have on the European Fund Industry.

It was commented that FATCA offers no advantage to those who comply, except for an escape from a penalising 30% withholding tax on the proceeds of their US assets. The definition of an FFI is very broad and includes foreign banks, foreign brokerage firms, as well as foreign funds. Once deemed as an FFI, 4 requirements apply with respect to your US accounts:

  • obtain information regarding each account holder, necessary to determine which accounts belong to US persons
  • provide annual reports to the IRS regarding these accounts
  • comply with IRS requests for additional information with respect to these accounts
  • attempt to obtain a waiver in any cases in which a foreign law, but for a waiver, would prevent information reporting to the IRS and then close the account if a waiver is not received within a reasonable period of time.

Taxand's Take

In the absence of any precise guidance, it is probable that no IT solution provider will start building appropriate programs for the industry. The best that can currently be undertaken is to identify what will need to be done and explore where small changes in the regulation could potentially generate a high level of savings. Highlighting these savings to the US authorities could probably persuade them to make reasonable changes to the FATCA regulations. Some funds may want to ban any US investors from investing in their fund in order to pursue the coveted deemed compliant exemption. In this case, the fund will need to explore how its distribution channels can convincingly demonstrate the procedures that will stop US citizens from investing. Finally, certain fund providers may wish to avoid investing in US securities. This is obviously a concern for the US Treasury but is a risk that they appear prepared to take. In all cases, US citizens living abroad may need to live with additional discrimination when attempting to access even basic financial services as most financial institutions are considering whether US customers are simply not worth the trouble.

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Your Taxand contact for further queries is:
Paul Chambers
T. +352 26 940 364

Taxand's Take Author