New reporting requirements set to come into effect next year could have wide-ranging implications for global structured finance transactions, said Fitch Ratings in a report today.
Beginning in January, foreign financial institutions will be required to provide more information to the IRS about their U.S. customers so the government can collect taxes, under the Foreign Account Tax Compliance Act of 2010, known as FATCA.
Under current plans, a 30% withholding tax would apply on relevant interest payments from January 2014 and relevant principal payments from January 2015.
The FACTA withholding tax would be applied at a rate of 30% on U.S. sourced cashflows transferred to foreign financial institutions (FFIs) that have not signed a FATCA agreement with the IRS.
The ratings agency said that a range of non-U.S. entities including SPVs, account banks, paying agents and custodians are expected to fall under the definition of non participating FFIs.
In these cases, transactions could see possible cashflow disruptions that would reduce the ability of the transaction to make ultimate payments to noteholders. Fitch said that it could also lead to ratings implications in individual transactions.