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Tax News
Treasury Official: Payments Under Fixed-term Revolvers Likely to Qualify For FATCA Exemption
January 24, 2011
Administrative Actions
on Friday, January 21, 2011, a Treasury Department official gave his views on the treatment of an important issue under FATCA that affects the PE and VC industries.  According to the Bureau of National Affairs' Daily Tax RealTime service, the official--Itai Grinberg, an attorney-adviser in Treasury's Office of International Tax Counsel--stated that he believed that payment obligations under revolving credit agreements outstanding as of March 18, 2012 would not be subject to FATCA's withholding tax regime, so long as such credit agreements have a finite term.  Based on Mr. Grinberg's comments, as well as previous guidance (Notice 2010-60), it appears that payments under revolving credit facilities with indefinite payment terms will not be eligible for FATCA's grandfather exemption, even if the facility were entered into prior to the effective date.  By way of background, IRC Section 1471, added by FATCA, subjects U.S. source payments made to foreign financial institutions (FFI) and certain other foreign entities to 30% withholding tax unless the FFI or other foreign entity complies with information reporting requirements, which in the case of FFIs, are substantial and onerous.  U.S. Source interest payments to foreign lenders are generally otherwise exempt from U.S. withholding tax.  Many offshore PE and VC funds will meet the definition of FFI.
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Tags: FATCA, FATCA compliance, FATCA implementation