On February 8, 2012, the IRS and US Treasury released 389 pages of proposed regulations under the Foreign Account Tax Compliance Act (FATCA), which was enacted for the purpose of combating offshore tax evasion. To achieve this goal, FATCA imposes a non-refundable withholding tax (FATCA withholding) of up to 30% (subject to exemptions or reduced rates by reason of an applicable US tax treaty) on certain payments to any “foreign financial institution” (FFI), unless the FFI reports certain information about financial accounts held by US persons, or by other non-US entities in which US persons hold a substantial ownership interest.

In the course of preparing the proposed regulations, the IRS received extensive comments from more than 150 organizations, including virtually all of the major international trade associations of banks, fund managers, swap dealers, and custodians, as well as many foreign governments and individual financial institutions.

FFIs that do not participate in FATCA, i.e, non-participating FFIs (NPFFIs), will be subject to FATCA withholding on (i) US-source interest, dividends, rents, royalties, insurance premiums, and other fixed or determinable annual or periodical gains, profits and income; (ii) gross proceeds from the sale of US debt and equity securities; and (iii) foreign-source payments from other FFIs to the extent attributable to their US assets (each, a withholdable payment).

Please see full article below for more information.