This practical note provides a comprehensive overview of the application of the Foreign Account Tax Compliance Act (FATCA) to credit agreements in the United Kingdom. Outside of credit markets, one of the outcomes of FATCA, as UK financial institutions are well aware, has been required to exercise often significant due diligence in determining which of their customers will be subject to FATCA. As mentioned above, the agreement between the United Kingdom and the United States requires that information about their US account holders be transmitted to HMRC provided that the accounts meet the applicable minimum thresholds. The process must be brought into line with their customer due diligence obligations under UK anti-money laundering regulations. Money orders now usually contain a statement that the client does not have U.S. resident status if it can be given. Both of the LMA`s lender risk approaches allow the borrower or other debtor to make a holdback if REQUIRED by FATCA without the need for a gross breakdown, which means that there is a split of FATCA from the gross provisions. The first version is based on the fatca grandfathering provisions and, given the extension of the grandfathering period, can be used for transactions concluded in 2013, although there are US borrowers or IFFs. It requires the consent of all lenders to a change or waiver that could result in the loss of grandfathering benefit.
If the borrower overrides a lender`s veto and FATCA withholding occurs, it must repay or replace that lender, with optional language to limit the class of lenders protected in this way. The second version simply provides that all parties have the right to make all deductions required by FATCA without being obliged to pay gross amounts. From the point of view of a financial party, this is only appropriate if it is satisfied that it will be FATCA compliant within the applicable time limits and that such a provision cannot affect its syndication or resale capacity. A UK lender under a bilateral facility may also accept such a provision if it is satisfied that it will be FATCA compliant, especially since it appears that it would only lose the benefits of the UK-US agreement for significant and persistent non-compliance with its reporting obligations. Even if the expected maturity date of a loan is earlier than the relevant date mentioned above, the parties must consider the risk that it will remain outstanding beyond that date. Can the due date be extended by mutual agreement without their consent? Of course, there is also the risk that a loan will remain outstanding beyond its expected term due to a default by the debtor. FATCA is so named because it is derived from the tax compliance provisions of foreign accounts in the United States HIRE Act of 2010. On 8 February 2012, the United States, the United Kingdom, France, Germany, Italy and Spain issued a joint statement on the implementation of FATCA. The statement set out a possible framework under which the international financial institutions of first instance in these five European jurisdictions could be considered “compliant” under FATCA without entering into separate global agreements with the US tax authorities. Instead, the United States would indirectly receive the desired information from these FRFIs through new reporting laws that would be implemented in these five jurisdictions.
However, this does not mean that foreign financial institutions in these jurisdictions can ignore the risk of FATCA retention. In particular: In general, most FATCA provisions in credit documents follow the FATCA provisions of the LSTA Model Loan Agreement. It should be noted that not all credit agreements contain FATCA provisions. Credit documents exclusively between countries other than the United States People sometimes omit these provisions because FATCA is not relevant. With respect to the UK credit market, FATCA may apply in the following circumstances: FATCA does not affect most borrowers under their loan agreements, as foreign financial institutions usually prove their FATCA compliance on an applicable version of IRS Form W-8. This practical note provides an introduction to inter-creditor agreements and their main provisions. This practice note:•explains the purpose of an inter-creditor agreement and when an inter-creditor agreement would be used instead of an act of priority or an act of subordination•provides links to a lender or subsequent lender under a loan or other financing agreement that must provide the applicable tax forms or suffer a possible withholding of interest payments. Failure to provide certain tax forms could result in a withholding tax under FATCA. Loans that were advanced or pledged before January 1, 2014 – a period that was recently extended from January 1, 2014. January 2013 – are grandfathered and do not fall within the scope of FATCA, but caution is advised if they are substantially modified after that date (under US tax law), as this could result in the loss of grandfathering benefit. It is not yet known when the fatca regulations dealing with the retention of Passthru will be promulgated or whether they will apply to loans, but the IGA approach means that, in many cases, such a Passthru withholding should not be required, making grandfathering irrelevant.
The main provisions of FATCA are now contained in Chapter 4 of Subtitle A of the United States Internal Revenue Code (the Code). Foreign financial institutions must consider FATCA disclosure and compliance requirements at a strategic level. But the question posed by many of those involved in syndicated loans (especially new syndicated loans) is simple: could payments under this facility agreement (including those of agents and other financial parties) be subject to FATCA withholding? John L. Harrington and Adam Pierce summarize the main factors that may determine the answer to this question. This summary is based on proposals for regulations published by the U.S. government in February of this year. These rules are subject to change. Final regulations, forms and model agreements are expected to be published later this year. As provided for in the AML, additional provisions will be appropriate, such as .B require each party to provide information on its FATCA status upon request and extend protection to security trustees.
The term refers to the provisions of the Foreign Accounts Tax Compliance Act (“FATCA”) of the US HIRE Act 2010, which aim to combat tax evasion by U.S. taxpayers who hold assets outside the United States. The final fatca regulations were adopted on 17 January 2013. The Loan Market Association (“LMA”) has not added FATCA provisions to its standard default loan agreements. However, it has published three forms of model clauses that can be used to treat FATCA as a borrower or lender risk. The latest versions of it were released on January 23 and are intended for use in transactions concluded in 2013. There is also a market debate about the LMA`s interpretation of FATCA. It should be noted that grandfathering applies only to instruments that are “bonds” for U.S. tax purposes. Therefore, a loan that U.S.
tax law treats as equity (unlikely for standard syndicated loans) is not eligible for grandfathering. A framework agreement that merely sets out general and general conditions also does not apply to a number of future contracts between the parties. If a credit agreement is binding before 1 January 2013, it is generally a “grandfathered obligation”. Accordingly, payments under this Agreement do not fall within the scope of the fatca withholding unless there is a “material change” to the Agreement on or after January 1, 2013. From 1 January 2013, all parties must therefore consider whether the amendment of an agreement before 1 January 2013 incorporates it into FATCA. .