30% TAX WITHOLDING

The Foreign Account Tax Compliance Act, enacted in 2010, requires foreign banks and other financial institutions to report U.S. account holders to the IRS. After identifying U.S. account holders, the institutions must impose a 30% tax on payments or transfers to account holders who refuse to identify themselves.

To avoid withholding themselves, the institution must enter into an agreement with the IRS to:

•Identify accounts held by U.S. persons;

•Report certain information to the IRS regarding the accounts held by U.S. persons; and

•Withhold a 30% tax on certain payments to non-participating foreign financial institutions and account holders unwilling to provide the required information.

Foreign institutions that don’t sign an IRS agreement will face 30% withholding themselves on U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments.

Needless to say, just about every financial institution in Europe has signed the IRS agreement.