Supplemental TEI recommendations on Foreign Account Tax Compliance Act.

• Position: Tax Executives Institute

September 21, 2011

On September 21, 2011, Tax Executives Institute filed the following comments with the Internal Revenue Service and U.S. Department of the Treasury on the Foreign Account Tax Compliance Act (FATCA). The comments respond to questions raised by IRS and Treasury representatives during meeting with TEI on August 16, 2011. The comments were prepared under the aegis of TEI's IRS Administrative Affairs Committee, whose chair is Michael J. Bernard of Microsoft Corporation, chair of TEI's IRS Administrative Affairs Committee. In addition to Mr. Bernard, the primary contributors to the comments were Paul Heller of the Royal Bank of Canada and Janice Lucchesi of AKZO Nobel Inc., all of whom attended the August meeting. Benjamin J. Shreck, TEI Tax Counsel, serves as legal staff liaison to the International Tax Committee and coordinated the preparation of comments.

On behalf of Tax Executives Institute, thank you again for the opportunity to meet on August 16, 2011, with representatives of the Department of the Treasury and Internal Revenue Service to discuss important technical and administrative issues related to FATCA. We appreciated the candid conversation and the commitment to striking an effective balance between the legislative purposes of FACTA and its associated administrative and compliance burdens.

This letter addresses questions discussed at the meeting regarding certain exceptions to FATCA and potential self-certification procedures. Specifically, we provide comments on the following:

1. The potential exception for "hedging/ financial centers of a non-financial group" (Financing Affiliates); (1)

2. The potential exception for foreign retirement plans; (2)

3. Entity self-certification of exception qualifications; and (3)

4. The potential exception for payments made to non-financial foreign entities (NFFEs) in the "ordinary course" of a payor's trade or business. (4)

1. Exception for Financing Affiliates

   Notice 2010-60 states that Treasury and the IRS intend to issue regulations to exempt Financing Affiliates from the definition of a foreign financial institution (FFI) under section 1471(d)(5), as well as exempt payments beneficially owned by such affiliates from withholding under section 1472(a). (5) The Notice provides that a Financing Affiliate is, in general, a "foreign entity that primarily engages in financing and hedging transactions with or for members of its expanded affiliated group (as defined in section 1471(e)(2)) that are not FFIs and that does not provide such services to non-affiliates...." (6) The Notice also asks for comments about how Financing Affiliates "may be more specifically defined...." (7)

   TEI previously suggested that the government use several activities typically engaged in by Financing Affiliates as criteria for identifying such affiliates for purposes of the exception to FATCA. (8) The discussion of this issue at our meeting, however, suggested that the activities and requirements of Financing Affiliates may not be properly understood; for example, there seems not to be a full appreciation that such affiliates routinely engage in transactions with entities that are not members of the expanded affiliated group?

   At the meeting, we...