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FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA). Derrick Skrycki, Accounts Payable Manager of SSC Ed Jennings, Tax Director.

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Presentation on theme: "FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA). Derrick Skrycki, Accounts Payable Manager of SSC Ed Jennings, Tax Director."— Presentation transcript:

1 FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA). Derrick Skrycki, Accounts Payable Manager of SSC Ed Jennings, Tax Director

2 Agenda What is FATCA? How does it impact us? How is it different from current foreign vendor filing and withholding requirements? What do we need to do? U-M Tax and Shared Services Center Departments 2

3 Plan A Plan B – Proceed with the Power Point Presentation U-M Tax and Shared Services Center Departments 3

4 What is FATCA New Law - FATCA requires foreign banks and certain foreign companies with substantial U.S. owners to report to the IRS information about their U.S. account holders or owners. The goal is to prevent U.S. citizens from hiding their income overseas. FATCA allows the IRS to reach around the world and track down money that is taxable to U.S. citizens. How can the IRS enforce foreign banks and businesses to report this information? - The IRS puts the onus on the US buyers to ensure compliance. For payments that fall under the FATCA umbrella, if the foreign bank or business does not comply with the law, the payer (i.e. U-M) must withhold 30 percent. These withholdings are reported on Forms 1042-S. U-M Tax and Shared Services Center Departments 4

5 What payments are subject to this withholding requirement? Shared Service Center (SSC) and/or Treasury departments may need to withhold on the following (possible payments in issue are highlighted in ‘red’ below): Dividends and gross proceeds on U.S. securities Interest on debt Interest on original issue discount Payments when payer is acting as a transfer agent Bank and brokerage fees Dividend equivalent payments Investment and fund manager fees U-M Tax and Shared Services Center Departments 5

6 How Does it Impact Us? Onus on U.S. Buyers – Buyers must determine whether the payee is a foreign financial institution (FFI) or a nonfinancial foreign entity (NFFE). If an FFI or Banks have entered into this agreement, they will indicate it by checking the box labeled "Participating FFI" on Form W-8 BEN-E If a bank indicates that they are a nonparticipating FFI, or fails to complete the Form W-8 correctly, then U-M must withhold 30 percent on payments that are subject to FATCA. If an NFFE, U-M must review the company's Form W-8 BEN-E to determine whether they selected "Passive NFFE." If so, then they must indicate whether they have no substantial U.S. owners (then no withholding) or, if they have them, must provide their name, address, taxpayer identification number, and ownership percentage of each (again, no withholding). U-M Tax and Shared Services Center Departments 6

7 What is a Form W-8 BEN –E? U-M Tax and Shared Services Center Departments 7

8 How is it different from the current foreign vendor filing and withholding requirements? Currently – U-M collects certification forms (Forms W-8) from foreign vendors who earned their income in the U.S. It then files Form 1042-S with the IRS (and a copy with the foreign vendor) reporting the income earned. Withholdings – Based on these certification forms, withholding is required at 30% unless a reduced rate or an exception applies. Exceptions include treaties, certain forms (e.g. Forms W-8ECI and W- 8EXP) and the type of transaction or purchase, i.e. goods. The form 1042-S may still be filed even when no withholdings are required. The vendors will use this form to file their income tax return, e.g. Form 1040-NR for Non-Resident Aliens (NRAs). Note - The payer is responsible for the withholdings (30% on the payments made) should the vendor not provide the correct form. FATCA - This new law requires reporting and withholding on income not earned in the US but only for those FFIs and Non-FFI’s that do not comply. U-M Tax and Shared Services Center Departments 8

9 Current Certification Forms or Forms W-8 Series Note that the Form W-8BEN-E defers to these forms. U-M Tax and Shared Services Center Departments 9 FormsDescriptions Form W-8BENCertificate of Foreign Status of Beneficial Owner for United States Tax Withholding Form W-8ECICertificate of Foreign Persons Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States Form W-8EXPCertificate of Foreign Government or Other Foreign Organization for United States Tax Withholding Form W-8IMYCertificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding

10 Other Questions? Are all foreign vendors subject to this requirement? FATCA excludes individuals but includes all other foreign vendors. What is the Timeline for this withholding? January 1, U.S. buyers must begin withholding on FATCA payments to new accounts held by non-participating FFIs and passive NFFEs. Accounts existing before then are not affected. Jan. 1, 2016: All foreign accounts which includes accounts existing prior to January 1, 2015 are now subject to FATCA withholding. Please note that payees can no longer rely on pre-FATCA Form W-8s. U-M Tax and Shared Services Center Departments 10

11 Impact on U-M Central Units – SSC will request for a W-8 BEN-E for foreign vendors in accordance with the timeline noted and any other required information to determine whether a withholding is proper. It will work with Procurement and Tax for appropriate consulting resources. Campus Units – SSC will need to work with units to collect and obtain the necessary information. These units may assist the process by collecting this form directly. Note that the need to collect this information should be prior to paying any vendor. U-M Tax and Shared Services Center Departments 11

12 Recap Is it a Foreign Vendor? If so, what certification form do they provide? If U.S. sourced income (the vendor is providing the services on U.S. soil) then one of the following: Form W-8BEN Form W-8ECI Form W-8EXP Form W-8IMY If Non-U.S. sourced income, then use the Form W-8BEN-E. If Form W-8BEN-E - if the box “Participating FFI” or “Active NFFE” is not checked then it should be reviewed by the tax department to determine the need to withhold. U-M Tax and Shared Services Center Departments 12

13 Educational Sessions and Materials Unit Sessions – We are willing to meet with units to discuss the implementation of this new law. Wolverine Tower – We are scheduled to hold group meetings as follows based on interest in attendance. January, 20 th, Thursday at 1 p.m. to 3 p.m. February, 19 th, Thursday at 1 p.m. to 3 p.m. March 11 th, Wednesday, at 8 a.m. to 10 a.m. Materials – We will make this power point presentation and certain frequently asked questions available on the SSC website. Hotline – Feel free to call SSC for questions regarding procedures at and Tax for questions regarding the applicability of the law at U-M Tax and Shared Services Center Departments 13

14 Questions? U-M Tax and Shared Services Center Departments 14


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