§1471 Withholdable Payments to Foreign Financial Institutions

Summary

Requires a 30% tax to be held back from payments to any foreign bank or financial firm that does not follow certain rules. To avoid the 30% holdback, a foreign financial institution must make an agreement with the Treasury. Under that agreement it must get and check information to find U.S. accounts, follow required ID and due-diligence steps, report each U.S. account every year (including name, address, taxpayer ID, account number, and balance, and sometimes gross receipts or withdrawals), withhold 30% on certain passthru payments to account holders who won’t give needed information or to other noncompliant firms, answer extra information requests, and try to get waivers when foreign law blocks reporting — and close accounts if a needed waiver is not obtained in a reasonable time. Some firms can instead be treated as compliant if they prove they don’t keep U.S. accounts or belong to a class the Treasury exempts. Firms can also choose a special option that changes which party must withhold on passthru payments. Quick definitions: United States account — an account held by certain U.S. persons or U.S.-owned foreign entities; financial account — deposits, custody accounts, or most equity/debt stakes; United States owned foreign entity — a foreign entity with significant U.S. owners; foreign financial institution — a money or investment firm organized outside the U.S.; recalcitrant account holder — an account holder who won’t give required info or a waiver; passthru payment — a payment that is or includes an amount subject to withholding. Payments to foreign governments, international organizations, foreign central banks, and other low-risk groups the Treasury names are not subject to the 30% withholding.