Instrument-Level Detail to Help Determine Withholding Obligations

Compliance with the U.S. Foreign Account Tax Compliance Act (FATCA) and its requirements on the exemption from withholding on payments related to “grandfathered obligations” that are outstanding on July 1, 2014 has presented a challenge for the financial industry in terms of how to track and determine grandfathered status. Further compounding this challenge is the fact that the determination of grandfathered status is not static, and significant changes or “material modifications” to a grandfathered instrument will cause that instrument to lose its grandfathered status under Internal Revenue Service regulations.

Our team has worked closely with a broad spectrum of market participants to understand the implications of FATCA and develop a comprehensive approach to identifying instruments that fall under the scope of FATCA.

The FATCA service will provide foreign financial institutions and withholding agents with instrument level-detail to help determine withholding obligations. This service will flag the FATCA status of instruments as: liable, grandfathered or exempt. Information will be provided to identify instruments that lose grandfathered status, together with the date of the change in status.

Instrument-Level Details Include

  • U.S. FDAP Indicator (Fixed, Determinable, Annual or Periodic) — Indicates if a security generates U.S. source income

  • FATCA Qualification Date — Identifies the date an instrument looses Grandfathered status

  • Material Modification — Ongoing instrument-level maintenance and event-based notification


  • Liable — Instrument is liable to FATCA withholding

  • Not Liable (Grandfathered) — Grandfathered obligations outstanding on July 1, 2014 are not liable to FATCA withholding

  • Liable (Loss of Grandfathered status) — Instrument has lost Grandfathered status and is liable to FATCA withholding from the FATCA Qualification Date

  • Exempt — Instrument is not liable to FATCA withholding

  • Liable (ISDA Master Agreement) — Derivative is liable to FATCA withholding as stated under an ISDA master agreement


The Foreign Account Tax Compliance Act (FATCA), which was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010, increases the ability of the Internal Revenue Service (IRS) to police tax evasion by U.S. persons holding financial assets outside of the United States.

FATCA levies a 30% withholding tax obligation on certain payments, unless Withholding Agents and Foreign Financial Institutions (FFIs) enter into an agreement with the IRS to obtain and report information on their U.S. account holders.

On 12 July 2013, the US tax authorities issued Notice 2013-43 ( delaying the withholding requirement until 1 July 2014, revising the definition of grandfathered obligations to include obligations outstanding on 1 July 2014, and delaying the implementation of new account opening procedures to the later of 1 July 2014 or the effective date of the FFI’s agreement with the IRS.

Interested in our Data Solutions?

Request more information