Global Report: U.S. Foreign Account Tax Compliance Act (FATCA): Compliance by Non-U.S. Retirement/ Deferred Compensation

The U.S. Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to combat federal income tax evasion by U.S. taxpayers through the use of accounts at foreign financial institutions. The intent of FATCA is to ensure that U.S. taxpayers report their non-U.S. financial accounts and related investment income/capital gains to the Internal Revenue Service (IRS), the U.S. federal tax authority.

This tax law will have a significant impact on all multinational employers, inside and outside the financial sector. Each of their non-U.S. “long-term” benefit programs may be subject to FATCA. The law and applicable regulatory guidance (along with certain intergovernmental agreements) casts a very broad net that may require multinational companies to report information on their non-U.S. long-term employee benefit plans such as pension plans, deferred compensation arrangements, and non-U.S. stock programs, directly or indirectly to the IRS.

If a program fails to comply with FATCA reporting (and is not the subject of an intergovernmental agreement or exempt under the FATCA rules), U.S. tax will be withheld at the rate of 30% on its U.S.-source income, including certain capital proceeds. This withholding tax is applicable, regardless of whether the benefit program actually covers any U.S. taxpayers.

Download Global Report: U.S. Foreign Account Tax Compliance Act (FATCA): Compliance by Non-U.S. Retirement/ Deferred Compensation