US Withholding Tax: Practical Implications of QI and FATCA (Global Financial Markets)

The US is the world's largest capital market. Its withholding tax system is also the most complex. This book is essential reading for investors and intermediaries trying to comply with US QI and FATCA tax regulations. It guides the reader through these complex regulations with simple and practical insights into how to meet these compliance burdens. The United States of America is the largest securities and capital market in the world attracting inward investment of several trillion dollars a year from over two hundred countries. Receipt of US sourced investment income by non-US investors is subject to strict US withholding tax regulations - Internal Revenue Code (IRC) Chapter 3 which control how income and withheld tax paid to non-US recipients is calculated, withheld and reported. US resident investors themselves are also some of the most active in outbound investment into the world's other major markets. The US claims the right to tax the global income of its citizens and so income derived from such outbound investment must be disclosed to the IRS. However, failure by some Americans to disclose their offshore assets has led to some recent high profile cases of tax evasion and the subsequent regulation of non-US financial institutions by the US government in IRC Chapter 4, also known as 'FATCA'. FATCA requires all non-US financial institutions to meet strict due diligence rules to identify and report accounts substantially owned by or effectively controlled by Americans - or suffer serious financial penalties. As with any regulations, the challenge for industry is to efficiently translate regulation into workable operational practices. This book gives practical insights into the day to day challenges that both sets of these regulations present for non-US financial institutions as well as those who provide support services to them. For those intermediary firms receiving US sourced income on behalf of non-US investors under IRC Chapter 3, awareness of the consequences of their status as qualified intermediaries (QIs) or non-qualified intermediaries (NQIs) is absolutely critical, yet rarely fully understood. While only around 35,000 firms globally are affected by IRC Chapter 3, over a million firms are expected to be impacted by FATCA as the IRS has widened its definition of 'financial intermediary' to include most pooled investment vehicles. This book includes both commentary on the key aspects of FATCA that will affect FFIs and NFFEs as well as appendices of the important reference documents. As the worlds of withholding tax and tax evasion deterrence converge, many countries are seeking to review, improve and simplify the US model. This book includes an update on the important work done in this area by the OECD and European Commission including standards and automation initiatives The United States of America is the largest securities and capital market in the world attracting inward investment of several trillion dollars a year from over two hundred countries. Receipt of US sourced investment income by non-US investors is subject to strict US withholding tax regulations 6 Internal Revenue Code (IRC) Chapter 3 which control how income and withheld tax paid to non-US recipients is calculated, withheld and reported. US resident investors themselves are also some of the most active in outbound investment into the world's other major markets. The US claims the right to tax the global income of its citizens and so income derived from such outbound investment must be disclosed to the IRS. However, failure by some Americans to disclose their offshore assets has led to some recent high profile cases of tax evasion and the subsequent regulation of non-US financial institutions by the US government in IRC Chapter 4, also known as 'FATCA'. FATCA requires all non-US financial institutions to meet strict due diligence rules to identify and report accounts substantially owned by or effectively controlled by Americans - or suffer serious financial penalties. As with any regulations, the challenge for industry is to efficiently translate regulation into workable operational practices. This book gives practical insights into the day to day challenges that both sets of these regulations present for non-US financial institutions as well as those who provide support services to them. For those intermediary firms receiving US sourced income on behalf of non-US investors under IRC Chapter 3, awareness of the consequences of their status as qualified intermediaries (QIs) or non-qualified intermediaries (NQIs) is absolutely critical, yet rarely fully understood. While only around 35,000 firms globally are affected by IRC Chapter 3, over a million firms are expected to be impacted by FATCA as the IRS has widened its definition of 'financial intermediary' to include most pooled investment vehicles. This book includes both commentary on the key aspects of FATCA that will affect FFIs and NFFEs as well as appendices of the important reference documents. As the worlds of withholding tax and tax evasion deterrence converge, many countries are seeking to review, improve and simplify the US model. This book includes an update on the important work done in this area by the OECD and European Commission including standards and automation initiatives Front Matter....Pages i-xiii Front Matter....Pages 1-7 Principles of Code Chapter 3....Pages 9-24 Contracts — The QI Agreement....Pages 25-32 Documentation....Pages 33-55 Withholding and Depositing Tax....Pages 56-64 Information Reporting and Tax Returns....Pages 65-76 Control and Oversight....Pages 77-82 Penalties....Pages 83-88 Issues for Non-Qualified Intermediaries....Pages 89-102 Front Matter....Pages 103-105 Moral Outrage and Righteous Indignation....Pages 107-113 Principles of FATCA....Pages 114-125 Simplifying FATCA....Pages 126-141 Identification and Documentation....Pages 142-151 Reporting....Pages 152-162 FATCA Withholding....Pages 163-172 Technology and Risk in FATCA....Pages 173-187 Front Matter....Pages 189-196 OECD TRACE IP....Pages 197-206 European Union....Pages 207-215 Back Matter....Pages 217-334