DLA PIPER The Foreign Account Tax Compliance Act (FATCA) I. OVERVIEW A. What is FATCA? FATCA, as it is colloquially known, refers to Chapter 4 of the US Internal Revenue Code, which was enacted by the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. FATCA requires non-US foreign financial institutions (FFIs) and non-US non-financial entities (NFFEs) to identify and disclose their US account holders and members or become subject to a new 30% US withholding tax with respect to any payment of US source income and proceeds from the sale of equity or debt instruments of US issuers (hereinafter referred to as Withholdable Payments). B. Why Was FATCA Enacted? This legislation is a direct result of the focus by the United States (and other industrialized and developing countries) on combating offshore tax evasion and recouping much needed tax revenues. The legislation was proposed to remedy perceived deficiencies in the current methods used by the US Internal Revenue Service (IRS) and the US Department of Justice (DOJ) to identify, US persons who utilize foreign financial accounts or foreign entities and thereby provide more information to the IRS to enforce compliance. The legislation was also prompted by the well- publicized prosecution of a large and well-knows Swiss bank that facilitated US tax evasion. C. What is the Purpose of FATCA? The overall purpose is to detect, deter and discourage offshore tax abuses through increased transparency, enhanced reporting and strong sanctions.' The ultimate goal of the legislation is for the United States to obtain information with respect to offshore accounts and investments beneficially owned by US taxpayers rather than to collect any tax through the new withholding regime. D. When Will FATCA Become Effective? FATCA will become effective with respect to payments after December 31, 2012 (subject to a limited transitional rule). The reason for the delayed effective date is to permit FFI