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Foreign Account Tax Compliance Act - Coggle Diagram
Foreign Account Tax Compliance Act
Enacted in 2010 as part of attempts by the US government to combat tax evasion by US persons holding investments in offshore accounts
Certain types of US taxpayers holding financial assets outside of the US must report these assets to the IRS
FATCA placed an obligation on FFIs to report directly to the IRS about certain information on financial accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership interest
Any funds which have US investors will potentially be subject tor reporting under FATCA in relation to those investors
Reporting by US taxpayers holdings foreign financial assets
FATCA requires certain US taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets
Reporting applied for assets held in taxable years beginning after 18th March 2010
Failure to report foreign financial assets results in a penalty of $10,000 and up to $50,000 for continued failure after IRS notification
Reporting by FFI
FATCA requires FFI to report directly to the IRS on certain information about financial accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership interest
A participating FFI will be obligated to
Undertake certain identification and DD procedures with respect to its accountholders
Report annually to the IRS on its accountholders who are US persons or foreign entities with substantial US ownership
Withhold and pay over to the IRS 30% of any payments of US source income as well as gross proceeds from the sale of securities that generate US source income made to either a non-participating FFI, individual accountholders failing to provide sufficient information about the identity of its substantial US owners
Financial institutions must report the information they gather to the US, where countries have an inter-governmental agreement, the financial institution will sed the US person's data to the local government first
FATCA data either received via IGAs or directly from FFIs is used to cross check a US person's self-reported data allowing detection of persons who have not self reported enabling collection of large penalities
In order to assess US indicia for an investor the following will need to be considered
A citizen of the US, including someone born in the US but living in another country, who has not renounced or otherwise relinquished their US citizenship
A lawful resident of the US, including a US green card holder
A person residing in the US
Someone spending a specified amount of time in the US
A green card holder who never formally handed in their green card upon leaving the US (even though the green card is no longer valid for US immigration purposes)
The child of a US citizen, provided a parent lived in the US period for a specified period of time
Financial institutions will also look for indicia to indicate a US connection and reporting obligation
A US place of birth
A current US residence or mailing address, including PO box
A current US telephone number
Standing instructions to pay amounts from a foreign account to an account maintained in the US
A current POA or signatory authority granted to a person with a US address
A US in care of or hold mail address that is the sole address with respect to the account holder