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FATCA's Due Diligence Expansion

By Manuel Garcia-Linares and George L. Metcalfe, Jr.

In 2010, Congress enacted the Foreign Account Tax Compliance Act (FATCA) in order to target U.S. taxpayers using offshore accounts to hide monies overseas. Although Congress' purpose and intent in passing FATCA was met, it has been achieved at a cost of imposing heavy burdens on those already compliant. The beauty of FATCA is that its grasp has no limits. That being said, FATCA poses new considerations for corporate counsel relating to their corporate clients and shareholders.

At the most general level, FATCA requires foreign financial institutions (FFI) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities, in which a U.S. taxpayer holds a substantial ownership interest. Thus, it imposes a new system of information reporting and a new 30% withholding tax on withholdable payments made by U.S. persons and others to Foreign Financial Institutions (FFI) and certain Non-Foreign Financial Entities that do not meet specific reporting requirements.

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