The Foreign Account Tax Compliance Act (FATCA)

FATCA
FATCA aims to identify U.S. persons* trying to avoid U.S. tax obligations by holding assets in non-U.S. structures and products

Foreign Financial Institutions (FFIs), which include CSDs, are invited to enter into participating agreements with the U.S. to:
Identify and annually report on U.S. accounts Withhold 30% of withholdable payments made to recalcitrant accounts or non-participating FFIs Have a responsible officer certify FFIs compliance with the obligations under the agreement U.S. withholding agents and participating FFIs are required to withhold 30% of withholdable payments made to recalcitrant (opposing) account holders or nonparticipating FFIs * US persons in this context is much broader than simply Citizens

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Summary
On February 8, 2012, the U.S. Treasury and IRS released the

proposed regulations for the Foreign Account Tax Compliance Act (FATCA) The goal is to ensure U.S. persons with financial assets outside the U.S. are paying U.S. tax U.S. Financial Institutions will be required to withhold 30% on U.S. sourced payments to foreign institutions/entities that dont comply including gross proceeds of transactions

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Who is Impacted and How Non-U.S. entity that accepts deposits in conjunction with a banking or similar business, insurance company, engages primarily in the business of investing or trading securities, commodities, partnerships or any interests in such positions. Broadly, all non-US banks, broker dealers, insurance companies, pension plans, mutual Funds, Hedge Funds and Private Equity Funds that holds financial assets for the account of others as a substantial part of its business will be FFIs FFIs must comply with FATCA or be subject to negative impacts 30% withholding tax which will apply to all payments of U.S. source income and gross proceeds, regardless of treaties or statutory exceptions 30% withholding on certain foreign source payments, which may apply even when there is no direct investment in U.S. assets Market pressure from counterparties and clients The rules apply to all FFIs even if they do not have U.S. clients!

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Obligations of a FFI
Identify U.S. accounts Obtain information regarding each account holders to determine which (if any) of such accounts are U.S. accounts Comply with verification and due diligence procedures required by the IRS/Treasury with respect to the identification of U.S. accounts If the FFI maintains U.S. accounts, it must report on an annual basis certain account information to the IRS The FFI must deduct and withhold a tax equal to 30 percent on certain payments to recalcitrant account holders (account holder that doesnt provide valid documentation) and non-participating FFIs - RESERVED by the IRS A FFI must comply with requests by the IRS/Treasury for additional information with respect to any U.S. account If foreign law prevents the reporting of any information the FFI must attempt to obtain a waiver from relevant investors in a reasonable period of time or exit the account

Comply with due diligence procedures

Report annually for U.S. accounts

Withhold on passthru payments

Provide further information upon request

Obtain a waiver when necessary

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Important Dates and Considerations

The draft FFI Agreement is expected by end of September

The US Government wants to finalize regulations by some time in November New Form W-8 should be in place by the end of 2012 now much longer FFIs are expected to sign up by July 1, 2013 If your organization is impacted by FATCA, preparing your processes and systems will take time Models (3) of Intergovernmental Agreement for Implementing the Foreign Account Tax Compliance Act to Improve Offshore Tax Compliance and Reduce Burden that the IRS has already signed with Great Britain and will signed with other European Countries as well as with Japan

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FATCA Self Assessment Questions If you answer YES to any of the following questions, FATCA will have implications for your organization. 1. Do you have any US issues eligible?
US Securities (US ISIN) that are listed in your Stock Market and/or your CSD provides custody, settlement and corporate action services for those securities to your participants.

2. Does your CSD have any US issuers?

In addition to your CSD, your Stock Exchange and your securities market have a US legal entity issuing debt instruments (local ISIN), or those US legal entities are operating in your market through a local issuer.

3. Do you or your participants have US account holders?

Who are negotiating local securities.

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FATCA Self Assessment Questions Cont 4. Does your CSD have an account with DTCC or links with organizations that have accounts with DTCC?
e.g. Euroclear, Clearstream or a Global Custodian

5. Does your CSD have any US dollar accounts in the United States?
Where your CSD is receiving proceeds related with cross-border settlement and redemptions, interest or dividend payments on behalf of your participants.

6. Does your CSD or any its subsidiaries have shareholders with an ownership share of 10% or more? 7. Does your CSD have plans to expand business lines in the medium term (2-3 years) in areas such as cross-border or multi-currency settlement, operational linkages, market integration such as Mila, FX CCP, foreign securities collateral management, etc?

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PLEASE - Examine the issue carefully in your own organization to understand how you may be impacted. - Think about how ACSDA members might work together/collaborate/share information to reduce the burden (financial and other) on your respective organizations. - Gather as much information as you can to better understand this complicated issue. - www. IRS.gov/FATCA