The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions (FFIs) to report to the Internal Revenue Service (IRS) information about accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
A participating FFI must enter into an agreement with the IRS to identify U.S. accounts and report specific identifying information about these accounts, along with agreeing to a host of other requirements. If FFIs choose not to sign with the IRS, then FATCA calls for a 30% withholding tax on all U.S.-source payments across the board – and that includes interest, dividends and gross proceeds from redemptions, corporate actions and the disposition of U.S. holdings and securities.
The Depository Trust Company’s Global Tax Services, through its U.S. Withholding Tax Service, ensures that the proper non-resident alien withholding tax is applied on U.S.- source payments made to non-U.S. participants. As such, DTCC must decide whether it will build the massive system enhancements needed to manage FATCA withholdings