Statutory disclosures for U.S. persons (FATCA)

Reporting obligations for U.S. persons

Residents of the U.S. as well as persons with substantial economic ties with the U.S. should be aware of a new chapter of IRS Code (Chapter 4) also known as FATCA, which aims to address tax abuses by U.S. persons through usage of foreign accounts. The new rules oblige foreign financial institutions – institutions domiciled and administered outside of the USA to report IRS on U.S. persons investing in accounts outside of U.S.

Who are U.S. persons?

Notice 2011-34 lists six indicia of U.S. status:

  • U.S. citizenship or lawful permanent resident (green card) status;
  • A U.S. birthplace;
  • A U.S. residence address or a U.S. correspondence address (including a U.S. P.O. box);
  • Standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a U.S. address;
  • An “in care of” address or a “hold mail” address that is the sole address with respect to the client; or
  • A power of attorney or signatory authority granted to a person with a U.S. address

Scope of FATCA

Due to character of FATCA, it is going to impact all financial and non-financial operating companies receiving any U.S. source income, including dividends, royalties, interest etc.

It is worth to mention that virtually all international financial centers signed FATCA into local laws or regulations. According to the latest reports U.S. Treasury has not indicated that any countries will have a special exception from reporting requirements.

Pursuant to FATCA all financial institutions which keep U.S. person’s accounts are obliged to obtain some of the documents below (subject to US indicia type):

  • W-9 or W-8BEN forms
  • Non-U.S. passport or similar documentation establishing foreign citizenship (in case of U.S. birth)
  • Written explanation regarding U.S. citizenship (in case of U.S. birth)
  • Document establishing non-US status

What foreign financial institutions are going to do with this information?

Foreign financial institutions will be obliged to report US accounts to local authorities or directly to IRS. Foreign financial institutions will be obliged in some cases to withhold 30% of any US source income in case of non-compliance.

Outcome of FATCA:

  • All countries in the world become tax agents of U.S. government and IRS in order to help American Government to find any U.S. assets, U.S. taxpayers and in some cases foreign financial institutions will be obliged to withhold funds for benefit of U.S. Government
  • Reporting entity should at their own expense collect, store, analyse and transmit data to US
  • Burden of proof lies with reporting entity, so most likely banks, funds, insurance companies and private equity firms should be obliged to report all their clients including U.S. persons and most likely non-U.S. person
  •  Those financial entities that refuse to participate in FATCA will be outlawed from financial system by imposing additional reporting sanctions on entities daring to make any business with non-compliant financial entities