Treasury Official: Payments Under Fixed-Term Revolvers Likely to Qualify for FATCA Exemption

Treasury Official: Payments Under Fixed-Term Revolvers Likely to Qualify for FATCA Exemption

On Friday, January 21, 2011, a Treasury Department official [Itai Grinberg] gave his views on the treatment an important issue under FATCA that affects the PE and VC industries... [Grinberg] 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 (I.R.S. 2010)), 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...

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View Matt Kaden's opinion in its entirety on the Private Equity, Venture Capital and Hedge Fund Taxation site.

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Explore insights on Drafting Partnership and LLC Agreements: Tax Boilerplate, Allocation & Liquidation Provisions by Ivan Mitev and Matt Kaden.  LEXIS users can access the publication online in the LexisNexis® Tax Center.

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