Enacted in 2010, the U.S. Foreign Account Tax Compliance Act (FATCA) mandates U.S. citizens and green card holders to report their non-U.S. financial accounts plus related investment earnings to the Internal Revenue Service. The reporting structure consists of two related strands, individual-level reporting and program-level reporting. The individual-level reporting strand requires U.S. persons to report their non-U.S. accounts as part of their federal income tax filing while the program-level reporting requires foreign financial institutions that operate financial accounts for U.S. persons to report on these annually to the IRS.

In part one of this two-part series, James Klein, New York-based senior counsel in Pillsbury’s executive compensation and benefits and tax practices, provides an overview of the program-level reporting issues that multinational corporations must manage with regard to their non-U.S. long-term benefits plans.

FATCA affects all multinational companies worldwide, regardless of where they are headquartered. For any non-U.S. long-term benefits program that is not FATCA-exempt, a company will need to decide whether to register the program with the IRS. It is chooses to register, it will need to overhaul its recordkeeping and on-boarding systems. If it chooses not to register, it will be subject to a new, punitive 30 percent withholding tax on its U.S.-source investment income.

Since 2012, significant changes have impacted FATCA’s implementation methodology and/or implementation timing, including:

  • Inter-Governmental Agreements released by the IRS in mid-2012 to work with countries in which the local law precludes a financial institution from reporting account information directly to the IRS.
  • Final FATCA regulations released in January 2013, which differ from the proposed regulations and describe exemptions that are available for non-U.S. benefits programs.

This article was originally published in the November 2013 issue of Benefits & Compensation International.