IRS informally announces delay of FATCA withholding on gross proceeds
Service may eventually eliminate FATCA withholding on gross proceeds
TAX ALERT |
The U.S. Internal Revenue Service (IRS) informally announced at recent conferences sponsored by the Securities Industry and Financial Markets Association (SIFMA) and Executive Enterprise Institute (EEI) that the requirement for FATCA withholding on gross proceeds from the sale of assets that could produce U.S. sourced interest or dividends, which was previously set to take effect on Jan. 1, 2019, will definitely be postponed and may eventually be eliminated. The Service indicated that a formal announcement and regulations are expected to follow shortly.
Pursuant to final regulations issued at the end of 2016 (see T.D. 9809), withholdable payments under FATCA were expanded to include gross proceed payments from the sale or disposition of property of a type that could give rise to U.S.-source income, such as interest or dividends. Reporting of payments of gross proceeds from the sale or disposition of property subject to FATCA withholding was originally set to begin on Jan. 1, 2017, however, the IRS ultimately delayed the reporting requirement until at least Jan. 1, 2019.
According to an IRS official, the Service is currently planning on issuing proposed taxpayer burden reduction regulations by the end of the year which would, among other things, eliminate the requirement to withhold on payments of certain gross proceeds. The new burden reduction regulations would modify the existing temporary and final chapter three and chapter four withholding regulations. The temporary chapter three and chapter four regulations will need to be finalized next year before they sunset.
This is significant and welcomed relief for companies that may have been updating their systems and procedures to prepare for the new reporting and withholding requirements with respect to gross proceeds. We await the regulations!