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Alternative Market Briefing

Clifford Chance reports on inconsistencies and concerns around FATCA

Tuesday, January 22, 2013

Beverly Chandler, Opalesque London: Clifford Chance has issued a detailed briefing note on the final FATCA Regulations, asking is FATCA now just compliance, or do real risks remain for international financial institutions and transactions?

Clifford Chance writes that while the cost of FATCA has been the principal concern since it was enacted in 2010, there have also been concerns at the two key legal risks FATCA creates. These are the risk that compliance contravenes local law and the risk that FATCA results in unexpected withholding taxes, even on non-US transactions, Clifford Chance writes.

On Thursday 17 January 2013, the United States issued the final FATCA Regulations. The FATCA legislation was conceived to counter tax evasion by US taxpayers. "Foreign financial institutions (FFIs) – such as banks, insurance companies and many funds and capital markets issuers are invited to sign agreements with the IRS to identify, and to disclose details regarding, their US accountholders. An FFI that doesn't sign and is not otherwise exempted faces a punitive 30% withholding tax on all "withholdable payments" derived from US sources. FATCA catches an impressively broad range of payments, including dividends, interest and certain derivative payments. In addition, after 31 December 2016, gross proceeds such as sale proceeds and returns of principal derived from stocks and debt obligations generating US source di......................

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