On April 17, 2012, the Internal Revenue Service (the "IRS") issued final regulations requiring financial institutions to report to the IRS any payments of interest on deposits maintained at an office in the U.S.1 made to non-resident aliens who are residents of certain countries with which the U.S. has entered into exchange of information agreements. The regulations apply to payments of deposit interest made on or after January 1, 2013, which means that the reporting requirement, typically due the following year, will become effective in 2014.

These regulations are closely related to the U.S. government's efforts to combat offshore tax evasion. As part of that effort, the Foreign Account Tax Compliance Act (commonly referred to as "FATCA") was enacted, requiring non-U.S. financial institutions to report information to the IRS on their U.S. account holders.2 In addition, the U.S. has entered into tax treaties and exchange of information agreements that require cooperation and reciprocity in sharing information relating to tax enforcement. The regulations requiring financial institutions to report to the IRS any payments of deposit interest to non-resident aliens ensure that the IRS is in a position to share relevant information with other jurisdictions either as provided for under FATCA's framework or pursuant to an exchange of information agreement.

The relevant information must be reported by a financial institution on IRS Form 1042-S. For purposes of determining the country of residence of a non-resident client, a financial institution may relay on the permanent address provided by the client on IRS Form W-8BEN. In conjunction with the final regulations, the Treasury Department issued Revenue Procedure 2012-24, which identifies the countries with which the U.S. has an information exchange agreement. Therefore, deposit interest paid to a non-resident alien who is a resident of a country that does not appear on the list below is not subject to reporting. The countries with which the U.S. currently has an information exchange agreement in effect are:3

Antigua & Barbuda
Aruba
Australia
Austria
Azerbaijan
Bangladesh
Barbados
Belgium
Bermuda
British Virgin Islands
Bulgaria
Canada
China
Costa Rica
Cyprus
Czech Republic
Denmark Dominica
Dominican Republic
Egypt
Estonia
Finland
France
Germany
Gibraltar
Greece
Grenada
Guernsey
Guyana
Honduras
Hungary
Iceland
India
Indonesia
Ireland
Isle of Man
Israel
Italy
Jamaica
Japan

Jersey
Kazakhstan
Korea (South)
Latvia
Liechtenstein
Lithuania
Luxembourg
Malta
Marshall Islands
Mexico
Monaco
Morocco
Netherlands
Netherlands island territories: Bonaire, Curaçao, Saba, St. Eustatius and St. Maarten (Dutch part)
New Zealand
Norway
Pakistan
Panama
Peru
Philippines
Poland
Portugal
Romania
Russian Federation
Slovak Republic
Slovenia
South Africa
Spain
Sri Lanka
Sweden
Switzerland
Thailand
Trinidad and Tobago
Tunisia
Turkey
Ukraine
United Kingdom
Venezuela

Footnotes

1 Including a U.S. branch of a foreign financial institution.

2 See our prior FATCA-related client alerts on Notice 2010-60, http://www.mofo.com/files/Uploads/Images/100910FACTA.pdf, Notice 2011-34, http://www.mofo.com/files/Uploads/Images/110420-IRS-Guidance-FATCA.pdf, Notice 2011-53, http://www.mofo.com/files/Uploads/Images/110719-IRS-Announces-Phased-Implementation-of-FATCA.pdf, and the proposed regulations, http://www.mofo.com/files/Uploads/Images/120214-Withholdable-Payment.pdf. For all FATCA updates, see our FATCA website at KNOWFatca.com.

3 Rev. Proc. 2012-24. In addition, the U.S. already automatically exchanges information with respect to deposit interest with Canada.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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