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Media Briefing Note: Implications of draft FATCA regulations on UK pension schemes

09 February 2012

LONDON, 9 February 2012 - Commenting on the draft Foreign Account Tax Compliance Act (FATCA) regulations issued by The United States Internal Revenue Service (IRS) yesterday, Nicola Rondel, senior associate in Hogan Lovells' pensions practice, said:

"The FATCA draft regulations are clearly intended to exempt foreign retirement plan Foreign Financial Institutions (FFIs) from the requirement to withhold tax on income from US investments.  The regulations enable a foreign pension scheme to qualify for certified deemed-compliant status if it accepts only employer, employee and government contributions limited by reference to earned income, no single beneficiary has a right to more than 5% of the FFIs assets and either contributions that would normally be subject to tax are deductible or excluded from a beneficiary's gross income, the taxation of investment income attributable to the beneficiary is deferred, or 50% or more of the total contributions to the FFI are from the government and the employer.   However, the requirement that any contributions to the plan must be "limited by reference to earned income" means that UK pension schemes are likely to fall outside the exemption because employer contributions will not always be limited in this way."

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