Bankers Support Reg Provision Eliminating Gross Proceeds Withholding

CC:PA:LPD:PR (REG-132881-17),
Internal Revenue Service,
Room 5203,
PO Box 7604,
Ben Franklin Station,
Washington, DC 20044.

TO: Regina Johnson

Re: Proposed Regulations Reducing Burden under FATCA and Chapter 3

Executive Summary:

We welcome and thank you for the opportunity to provide feedback on the proposed regulations. This document articulates ANZ Banking Group's (ANZ) three matters for IRS consideration, to reduce burden under FATCA and Chapter 3.

In summary, ANZ:

• Supports the elimination of gross proceeds withholding.

• Recommends the elimination of foreign passthru payment withholding.

• Seeks clarification for the alignment of the Managed Investment Entity definition.

Elimination of gross proceeds withholding

We agree with the rationale articulated in the Explanation of Provisions and support the elimination of gross proceeds withholding. The implementation of gross proceeds withholding would have imposed significant additional burden on financial institutions globally without any meaningful benefit for the effective implementation of FATCA.

Elimination of foreign passthru payment withholding

Similar to the underlying rationale in relation to gross proceeds withholding, our view is that foreign passthru payment withholding is no longer required to ensure the effective implementation of FATCA, due to evolutions in the global community's approach to AEOI:

• The Treasury and IRS efforts in promoting FATCA have achieved a wide global coverage of IGAs, including most of the world's financial centres and 'tax havens'. Further incentive to comply with FATCA is unnecessary as these IGAs mandate compliance through local law.

• Many jurisdictions not currently covered by an IGA have adopted the OECD's Common Reporting Standard (CRS). The vast majority of these jurisdictions have implemented the 'wider' approach, requiring due diligence to be performed for all foreign tax residents (including the U.S.). This in effect means that even where the implementing jurisdiction does not have an IGA with the U.S., the collection of foreign tax residency information by financial institutions (including information required to determine U.S. tax residency) as a condition of account opening is now backed by the force of local law.

• Finally there has been increasing regulatory scrutiny globally on the effectiveness of AEOI regimes, with the OECD leading the international anti-avoidance effort with initiatives such as the Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and investigation of Residence/Citizenship by Investment schemes. In the FATCA context, schemes such as a nonparticipating FFI using a participating FFI “blocker” will also be caught in the net of these stronger anti-avoidance measures being adopted by jurisdictions across the globe.

On the other hand, the implementation of foreign passthru payment withholding will impose a very significant burden on FFIs. The potential extension of withholding to all local FDAP systems (as originally envisioned under foreign passthru payment withholding) would require a prohibitive technology investment (and in many cases, system replacement) across all solutions due to the additional volume, withholding complexity and performance issues (to the point that it may not be commercially viable for some FFIs).

Therefore the additional incentive arising from foreigh passthru withholding would only apply to a small number of jurisdictions (with less significance in the global financial system) and the benefits would not be proportional to the enormous cost for FFIs and other stakeholders to implement.

Requiring foreign passthru payment withholding may also inadvertently force some FFIs to become 'nonparticipating' due to legal impediments to processing withholding under international law on non U.S. source income, or where the commercial/legal arrangement between the FFI and their clients precludes any withholding on non U.S. source income.

Therefore foreign passthru payment withholding should be eliminated because:

• it is unlikely to further enhance the effectiveness of FATCA in the context of the widespread coverage of FATCA IGAs, as well as increased global focus on AEOI and anti-avoidance measures; whereas

• on the other hand the implementation of foreign passthru payment is certain to impose significant additional burdens on FFIs, with further potential for other undesirable outcomes.

Alignment of Managed Investment Entity definition

We welcome the intent to reduce burden on FFIs by aligning definitions where possible. However we note that the proposed regulations appear to differ from the clarifications provided by the OECD in the following two aspects in relation to the entity receiving the investment:

Can you please confirm that these differences were not intended to create a significantly different definition to the one clarified by the OECD but rather that alignment to the OECD definition was intended; and if this is so, please could the wording in the final regulations be amended accordingly.

Alternatively, if these differences are intended to be significant, we seek your consideration of full definitional alignment with the OECD clarification; unfortunately from our experience these types of subtle and nuanced differences in otherwise similar concepts will result in increased burden and complexity for FFIs, customers, and other stakeholders, which could result in unintended incorrect classification(s).

We thank you for your time and consideration of the content in this response.