Yesterday, in Announcement 2012-42, the Internal
Revenue Service (IRS) announced its intention to modify proposed
regulations issued in February 2012 by the IRS and Treasury
Department that implement a set of statutory rules commonly
referred to as FATCA (the Foreign Account Tax Compliance Act). (For
a discussion of the proposed regulations, please see an earlier
Ropes & Gray Alert.) The announcement provides welcome relief under
FATCA, including for foreign financial institutions (FFIs) and
other withholding agents. In issuing the announcement, the IRS is
responding to comments on the proposed regulations, notably those
identifying practical issues with implementing the FATCA rules
within the prescribed timeframes and seeking to expand the
categories of "grandfathered obligations." Significantly,
the announcement includes the following changes.
It extends and coordinates the dates for FFIs and other
withholding agents to complete FATCA diligence (see summary table
at the end of the announcement) and delays certain reporting
It delays by two additional years the requirement to withhold
on gross proceeds (as described in the proposed regulations) by
limiting withholding to gross proceeds from sales or other
dispositions occurring after December 31, 2016.
It adds the following new categories of "grandfathered
obligations": obligations that could become subject to FATCA
withholding solely as a result of any future final guidance
treating them as generating (i) "foreign passthru
payments" if the obligations are outstanding as of the date
that is six months after the date such final guidance is issued or
(ii) U.S.-source "dividend equivalent" payments under
Internal Revenue Code Section 871(m) if the instruments are
outstanding on the date that is six months after the date on which
instruments of their type first become subject to such treatment;
collateral obligations securing notional principal contracts
that themselves are grandfathered obligations.
The IRS indicated that these changes will be reflected in the
final regulations under FATCA, which are expected to be released by
the end of the year.
Whether your company is exposed to multistate taxation depends on many factors, including the nature of your business, the tax laws in each of the states in which you do business, and your activities in those states.
The staff of the Senate Finance Committee recently issued the seventh in a series of reports outlining alternatives for the members of the committee to consider as they begin work on tax reform legislation.