FATCA Practice Point Series: Derivatives

The Foreign Account Tax Compliance Act generally imposes a 30% withholding tax on (i) withholdable payments (generally, U.S. source interest and dividends and gross proceeds from a disposition of equity and debt instruments issued by U.S. persons); (ii) foreign passthru payments (a term yet to be defined), if such payments are made to a foreign financial institution that fails to provide certain information about its account holders to the Internal Revenue Service; and (iii) certain payments made by an FFI to an account holder that fails to establish whether it is a U.S. person (or whether it is a non-U.S. entity owned by U.S. persons).