Bachir Al Nakib on FATCA

1. Bachir Al Nakib on FATCA abridged presentation slides Conversations on Compliance February 2012

2. Agenda • Withholdable Payments • FFI Requirements • Important Definitions • Exception for Certain Payments • Categorisation and Due Diligence • 5 FATCA Facts

3. Withholdable Payments

4. any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States, and any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States. A “withholdable payment” is: - An FFI may be treated by the IRS as meeting the reporting requirements imposed by FATCA if such FFI:

5. FFI Requirements

6. FFI Requirements FFI Deemed to Meet Requirements in Cases • If it complies with such procedures as the IRS may prescribe to ensure that such FFI does not maintain United States accounts, and meets such other requirements as the IRS may prescribe with respect to accounts of other FFIs maintained by such FFI, or • If is a member of a class of FFI with respect to which the IRS has determined that the application of the reporting and withholding imposed by FATCA is not necessary. An FFI can also elect: • to be withheld upon rather than withhold on payments to recalcitrant account holders and nonparticipating FFIs. • to be subject to same reporting requirements as United States financial institutions.

7. Important Definitions

8. Important Definitions “United States account” is any financial account which is held by one or more specified United States persons or United States owned foreign entities (except for individual depository accounts held by an FFI which in the aggregate do not exceed $50,000). Financial account” means: • any depository account maintained by an FFI, • any custodial account maintained by an FFI, and • any equity or debt interest in an FFI (other than interests which are regularly traded on an established securities market). “Recalcitrant account holder” means any account holder which fails to comply with reasonable requests for information or fails to provide a waiver upon request. “Passthru payment” means any withholdable payment or other payment to the extent attributable to a withholdable payment.

9. Important Definitions – Cont. “United States owned foreign entity” means any foreign entity which has one or more substantial United States owners. “Substantial United States owner” means any specified United States person which owns, directly or indirectly, more than 10% of: (a) the stock of a corporation (by vote or value), (b) the profits interests or capital interests in a partnership, and (c) in the case of a trust: (i) the specified United States person is treated as an owner of any portion of such trust, and (ii) any specified United States person which holds, directly or indirectly, more than 10% of the beneficial interests of such trust. However, there is a special rule for investment vehicles. In the case of any FFI that is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest (including a future or forward contract or option) in such securities, partnership interests, or commodities, the percentage above shall be zero instead of 10%. This means that any specified United States person owning a percentage in an investment vehicle shall be deemed a substantial United States owner even if he or she holds an interest as mall as 0.1%.

10. Important Definitions – Cont. “Specified United States person” means any United States person other than: any corporation the stock of which is regularly traded on an established securities market or which is a member of the same expanded affiliated group as a corporation the stock of which is regularly traded on an established securities market; any tax exempt organization or an individual retirement plan;

11. Exception for Certain Payments

12. Exception for Certain Payments • No withholding shall apply to any payment to the extent that the beneficial owner of such payment is: • any foreign government, any political subdivision of a foreign government, or any wholly owned agency or instrumentality of any one or more of the foregoing; • any international organization or any wholly owned agency or instrumentality thereof, • any foreign central bank of issue, or (iv) any other class of persons identified by the IRS for these purposes as posing a low risk of tax evasion.

13. Categorisation and Due Diligence

14. Account holder categorisation Notice 2010-60 requires participating FFIs to categorize its account holders. Payers of US-Source Income must categorize payees into 1 of 7 categories: • US persons • Participating FFIs • Deemed Compliant FFIs • Non-Participating FFIs • Entities exempt from FATCA reporting (foreign governments) • Excepted NFFEs and • Other NFFEs

15. US ownership Notice 2010-60 requires participating FFIs to categorize its account holders. The FFI must undertake a search of indices of US ownership of the account. Indices of US ownership include: • Identification of the account as a US account in the Bank or Fund’s books & records • U.S. place of birth for the account holders • Standing instructions to transfer funds to an account maintained in the US • US residence address or a US correspondence address • An “in care of” or “hold mail” address that the sole address in the FFI’s electronic database • A power of attorney or signatory authority granted to a person with a US address

16. Due diligence procedures Notice 2011-34 Due diligence procedures that FFIs must conduct on its accounts generally and private banking accounts. These procedures include: • Conduct a due diligence of electronic and paper files to determine if any account has indicia of US ownership • If any indicia of US ownership is discovered, then the private banking relationship manager must request documentation to ascertain whether the account is a US account. • If the account holder does not establish that it is a non-US account, the FFI must treat an account with US indices of ownership as a US account. • The FFI must obtain a waiver of any local laws that would allow a US account to prevent turning over the name of the account holder to the IRS

17. Refusal to supply information What Happens if An Accountholder Refuses to Supply Information? • The FFI must make reasonable attempts to obtain the information, must achieve a certain level of compliance and close accounts where necessary to achieve compliance. • Recalcitrant account holders include accounts that fail to (i) waive foreign law privacy laws, (ii) comply with requests for information and (iii) provide information on “substantial US owners.” • Financial accounts include depository & custodial accounts & nonpublicly traded debt & equity investments in the FFI itself. Short-term accounts may be excluded. • US accounts do not include depository accounts held by natural persons provided that the aggregate amount in all accounts of the individual that do not exceed $50,000 (or equivalent value).

18. IRS Reporting Requirements What Are the IRS Reporting Requirements by the FFI? The FFI must supply the following information to the IRS: • Name, address and TIN of each account holder that is a “specified US person.” • Name, address and TIN of each “substantial US owner” of an account of a US-owned foreign person. • The account number, balance and value. • All gross receipts and gross receipts & withdrawals from the account. Reporting applies to 50% or more owned affiliates as well as the FFI itself.

19. 5 FATCA Facts Agreement to comply by 30 June 2013 Agree to provide information to the IRS on US investors or suffer withholding of 30% on US source income Impacts all foreign financial institutions (FFIs) and service providers, including banks, custodians, administrators, nominees, transfer agents and brokers Affects even those FFIs that have no US investors or accounts Not just a tax law, but a compliance and operational issue

20. Thank you