She use of a withholding approach to compel disclosure is innovative and pragmatic because foreign financial institutions and other foreign entities frequently operate outside of the US taxing jurisdiction. The withholding approach addresses this jurisdictional problem because it shifts the collection burden to parties within US taxing jurisdiction (known as withholding agents) and accessible to IRS examiners.
Withholding agents have a significant incentive to comply with these rules because failure to do so causes the economic burden to shift to the withholding agent itself and, in some cases, the individual financial executives responsible for the withholding failures.Accordingly, in order for a foreign financial institution to be willing to serve US investors without making disclosures to the IRS, the financial institution must be willing to absorb a significant economic hit to its US investment yield. In this regard, the legislation creates a ‘pay-to-play’ system for foreign institutions that wish to maintain a US client base.
To avoid the withholding taxes imposed under the Fatca provisions, foreign financial institutions must agree to provide significant and detailed information to the IRS regarding their US clients and withhold a 30% tax on any pass-through payments from their own ‘recalcitrant account-holders’ (those who fail to comply with reasonable requests for identifying information).
Information to be reported on US accounts includes: the name, address and taxpayer identification number (TIN) of each account-holder; the name, address and TIN of each substantial US owner of any because foreign financial institutions and other foreign entities frequently operate outside of the US taxing jurisdiction. The withholding approach addresses this jurisdictional problem because it shifts the collection burden to parties within US taxing jurisdiction (known as withholding agents) and accessible to IRS examiners.
Withholding agents have a significant incentive to comply with these rules because failure to do so causes the economic burden to shift to the withholdcases, the individual financial executives responsible for the withholding failures.Accordingly, in order for a foreign financial institution to be willing to serve US investors without making disclosures to the IRS, the financial institution must be willing to absorb a significant economic hit to its US investment yield. In this regard, the legislation creates a ‘pay-to-play’ system for foreign institutions that wish to maintain a US client base.
To avoid the withholding taxes imposed under the Fatca provisions, foreign financial institutions must agree to provide significant and detailed information to the IRS regarding Withholding agents have a significant incentive to comply with these rules because failure to do.
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So causes the economic burden to shift to the withholding agent itself and, in some cases, the individual financial executives responsible for the withholding failures.Accordingly, in order for a foreign financial institution to be willing to serve US investors without making disclosures to must be willing to absorb a significant economic hit to its US investment yield. In this regard, the legislation creates a ‘pay-to-play’ system for foreign institutions that wish to maintain a US client base.
To avoid the withholding taxes imposed under the Fatca provisions, foreign financial institutions must agree to provide significant and detailed information to the IRS regarding their US clients and withhold a 30% tax on any pass-through payments from their own ‘recalcitrant account-holders’ (those who fail to comply.
