Executive Pay and Loyalty

International Tax - U.S. FATCA 2012 (Code §6038D)

2014.Mar.19  2014 Deadlines for FATCA Compliance (April 25th and July 1st) 
This Alert from Buck Consultants provides a comprehensive and understandable overview. See this Groom Law Alert for a list of countries whose pension plans are subject to potential FACTA exemptions under intergovernmental agreements.     

2013.Jun.14 FATCA Update for Employers re Benefit Plans
During an informal call this week, the Treasury Department’s FATCA specialists provided welcome news for employers: compensatory plans are generally exempt from FATCA because their benefits are exempt from being treated as “withholdable payments” for FATCA purposes.  

This means, among other things, that plan sponsors should not need to file information reports on the recently-released Form W-8BENE-E.  Plan sponsors may, however, be asked by foreign financial institutions (FFIs) for certifications about the design and coverage of their plans. Specifically, in connection with preparing their own W-8BEN-E filings, FFIs may ask plan sponsors whether their plans satisfy one of six available FATCA exemptions. For instance, one exemption requires that no single beneficiary be entitled to more than 5% of the plan’s assets (the “broad participation” exemption), and another requires that the plan have fewer than 50 participants, with less than 20% of its assets being held for non-residents of the host country (the “narrow participation” category). In these and other cases, there are specific criteria for the FATCA exemptions.
 

At this time, a wait-and-see approach makes sense for employers because the Treasury Department has not yet released the instructions that will accompany the Form W-8BEN-E (which was  released for comment on May 20th). There are, of course, previously-established tax filing obligations for employers with respect to their non-U.S. compensatory plans. We are in the process of assembling follow-up questions for the Treasury Department, so please feel welcome to share insights and experiences by contacting Mark.

2012.Jun.27  Voluntary Correction Program -- for failure to file required Forms 8938: see IRS homepage / IRS FAQs 

2012.Mar.21
  TAX ALERT FOR NON-U.S. ISSUERS ... AND THEIR U.S. AFFILIATES
 
Consider ASAP Notice to U.S. Taxpayer-Employees re FATCA

A new and obscure tax reporting requirement under FATCA  requires that certain U.S. individual taxpayers disclose – on Form 8938 attached to their 1040s due April 15, 2012 – interests in specified foreign financial assets which include their equity holdings and awards received from non-U.S. entities. Interests in non-U.S. defined contribution plans, and distributions from non-U.S. defined benefit plans, are also potentially reportable. While failure to file penalties of up to $10,000 would fall on employees, officers, and directors who are U.S. taxpayers, it is nonetheless wise for employers to act ASAP to consider providing a simple heads-up notice to those who are at risk due to their employer-provided stock awards and employee benefits.  More at Alert. 

Who needs to worry?

Here is a table presenting trip-points that could require a U.S. taxpayer to file Form 8938:

Your Filing Status

The Total Value of Your “Specified Foreign Assets” as of:

Any time during year

Year End

Unmarried living in U.S.

$75,000

$50,000

Married filing jointly, and living in U.S.

$150,000

$100,000

Married filing separately and living in the U.S.

$75,000

$50,000

Living abroad:

  • Single or Married filing separately
  • Married filing joint



$300,000

$600,000


$200,000

$400,000

What are “Specified Foreign Assets”?

This term includes any financial account in a “foreign financial institution” (as defined in FATCA regulations) as well as:

  • Stock or securities of a non-U.S. company.
  • Stock Awards, including stock options, and capital and profits interests, relating to non U.S. companies.
  • Interests in non-U.S. defined benefit plans.
  • Accruals credited to accounts under non-U.S. defined contribution, cash balance, or deferred compensation plans.

How do we determine the value of stock and stock awards?

Temporary FATCA regulations essentially require fair market value determinations. That is easier said than done due to a bizarre combination of (1) no published advice at all about handling unvested awards or valuing stock options (although we hear their in-the-money value is a reasonably acceptable measure provided it is based on the employer's high stock value during the relevant year), or, and (2) complex rules for identifying maximum value during the year.  For instance, taxpayers may value their stock and awards based on year-end values or based on periodic account statements, in each case unless there is reason to know that higher values occurred during the year.  Given the lack of any advice on the implications to filing Form 8938, and uncertainty with the application of many of the rules including valuations, taxpayers may wish to err conservatively and file Form 8938. Interestingly, if a Form 8938 filing is required, it must report a particular Specified Foreign Asset even if it has a zero value.

What should employers do ASAP?

Non-U.S. payors of compensation or benefits may want to provide a FATCA notice now to their employees who are U.S. taxpayers. This can certainly be done and initiated by a U.S. employer having a non-U.S. parent. 

Our experience with Code Section 409A, under which tax penalties legally fall only on employees, finds that employers often assist employees with compliance and step forward to voluntarily correct violations.  The same dynamic could unfold for FATCA violations, with the best strategy being to position for compliance at the front end, starting with April 15, 2012. That being noted, employers should be sensitive to providing FATCA information in a way that minimizes their liability risks, including those arising under any applicable securities disclosure laws (e.g., a prospectus presenting a tax disclosure for equity awards).

2012.Feb.29 General Effect on Benefits Plans - Alerts from Baker& McKenzie and Groom.
   
 >>> For general FATCA info, see Paul Hastings Alert.

Applicable Law and Governmental Publications: