For borrowers and lenders subject to FATCA withholding, maintaining FATCA grandfathering on a debt instrument may be critical to avoiding FATCA withholding tax, writes Reed Carey
The US Foreign Account Tax Compliance Act (FATCA) exempts payments on certain types of securities and obligations from withholding under FATCA if they are issued or entered into before the end of a grandfathering period. Amongst the obligations covered by the grandfathering provisions are debt instruments with fixed maturity dates including a line of credit or a revolving credit facility (Treas. Reg. § 1.1471–2(b)(ii)(2)(A)). Instruments treated as equity for US tax purposes and instruments without a stated expiration or term (for example a savings deposit or demand deposit or a deferred annuity contract) are not covered by the grandfathering provisions (Treas. Reg. § 1.1471–2(b)(ii)(2)(B)).
FATCA grandfathering is...
