The US Foreign Account Tax Compliance Act (“FATCA”): An Introduction for Italian Financial Institutions

The article is an introduction to FATCA, the US Foreign Account Tax Compliance Act, for lawyers and business people at Italian financial institutions. FATCA, which was enacted two years ago and will soon take effect, constitutes a significant assertion of extraterritorial jurisdiction by the United States, the effects of which are being felt across the financial markets. The FATCA reporting and withholding regime will be phased in over the coming years and has begun to raise many challenging issues for non-US financial institutions. This article outlines the purposes of FATCA, how it is expected to operate and the steps non-US financial institutions will have to take to comply with FATCA. The article highlights the challenges - both operational and legal - compliance with FATCA will present to non-US financial institutions. It also describes the legal uncertainties regarding the scope of future withholding obligations on non-US financial institutions with respect to certain payments they make that are not directly connected to the United States, so-called "foreign passthru payments". Finally, it discusses the relief financial institutions in certain European countries may obtain under a proposed intergovernmental framework with the United States as well as certain market developments in response to FATCA.


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