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Foreign Account Tax Compliance Act (“FATCA”) 2012 CIFA, CBA & IBA September 28, 2012 • Curaçao

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Table of Contents

1. Introduction - FATCA Overview

2. Classification

3. Withholding

4. Timeline

Introduction – FATCA Overview

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Congressional Action Tax Haven Banks & U.S. Tax Compliance (2008)

Issue –

U.S. persons are using foreign entities to invest and avoid U.S. reporting and back-up withholding.

Certifying to be foreign persons.

Availing themselves of treaty benefits.

U.S. loses an estimated $100 billion in tax revenues annually due to offshore tax abuses.

Financial institutions may be facilitating international tax evasion.

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The Congressional Reaction: FATCA

How? What are the consequences of being noncompliant?

The purpose of FATCA is to “detect, deter and discourage offshore tax evasion” by US citizens or residents.

Create greater transparency by strengthening information reporting and compliance with respect to US accounts.

FATCA requires reporting to the IRS certain information on direct and indirect US account holders.

FATCA imposes a 30 percent withholding tax on any “withholdable payment” made to a recalcitrant account holder or a non-compliant foreign entity.

What? FATCA – Foreign Account Tax Compliance Act

Why? What is the intent?

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FATCA Overview What is the IRS looking For?

US

US Foreign

Investment Fund

Under Current Law Information is

available regarding this level

Under FATCA Information will be

provided on this person

US Person

Foreign Private

Bank

Participating FFIs at this level will gather

information, report and withhold US tax against

passthru payments

USFIs will have information gathering,

reporting and withholding responsibilities similar to

those of Participating FFIs

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FATCA Overview FATCA’s New Withholding & Reporting Requirements

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A 30% U.S. withholding tax on any Withholdable Payment and any Pass-thru Payment paid to any offshore fund or other type of Foreign Financial Institution (“FFI”) unless the FFI has entered into an FFI Agreement obligating it to report and withhold with respect to certain accounts.

A 30% U.S. withholding tax on any Withholdable Payment paid to any Non-financial Foreign Entity (“NFFE”) unless the NFFE identifies each Substantial U.S. Owner that owns a direct or indirect interest or certifies that it has no such Substantial U.S. Owners.

The term “Withholdable Payment” includes gross proceeds from the sale of U.S. stocks and securities, payments on certain U.S. equity swaps, and U.S.-source dividends, interest, rents, royalties, etc.

The term “Pass-thru Payment” means any Withholdable Payment or other payment to the extent attributable to a Withholdable Payment which is paid by an FFI to another FFI.

FATCA withholding and reporting requirements apply in addition to, and not in replacement of, the current U.S. withholding tax rules .

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FATCA Overview Understanding the Requirements 1. Classification:

◦ Categorize all funds/entities based on domicile, activities, investments and investors.

◦ Classifying pre-existing and new accounts by searching for or gathering, respectively, and verifying information on individual and entity investors/clients.

2. Withholding:

• Participating funds/entities will be required to withhold on certain payments

3. Reporting:

• Reporting of current and new investors/clients identified as US persons or as entities having substantial US ownership (incl. account balance and gross proceeds amounts).

• Participating funds/entities will need to compute and publish certain information to both the IRS and investors on a periodic basis.

4. Certification:

• Certifying compliance with the provisions of the FATCA regulations.

• The “Responsible Officer” or another senior executive acting in that capacity will be responsible for signing the certification on behalf of the funds/entities.

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Classification

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Classification What is a U.S. Account?

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FATCA targets U.S. accounts, which are defined as any 'financial account' which is held by one or more specified United States persons or United States owned foreign entities.

A U.S. Person includes among others:

― A citizen or resident of the U.S.; and

― U.S. partnerships or corporations.

A U.S. owned foreign entity is a foreign entity which has one or more Substantial U.S. Owners

― More than 10% direct or indirect ownership.

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Classification What is a Financial Institution (“FI”)?

„that accepts deposits in the ordinary course of a banking or similar business…“

(a) “Entity …”

“holds financial assets for the account of others as a substantial portion of its business …”

“is engaged (or holding itself out as being engaged) primarily in the business of investing, reinvesting, or trading in securities, […] insurance and annuity contracts or any interest (futures, options,…) […]”

“is an insurance company (or the holding company of an insurance company) that issues or is obligated to make payments with respect to a financial account.”

(b) Exclusions – certain nonfinancial holding companies, certain start-up companies, hedging/financing centers of a nonfinancial group, religious, charitable, educational non-profit organizations, etc.

or

or

or

Financial Institution

** NOTE: An FI organized in a non-U.S. jurisdiction is a Foreign Financial Institution (FFI). A financial institution organized in the U.S. is a U.S. financial institution (USFI).

The qualification of an FI depends on its business –

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A Foreign Financial Institution (“FFI”) is a foreign entity that either: Examples:

Accepts deposits in the ordinary course of a banking or similar business

Commercial Banks Savings & Loan

Associations

Credit Unions Co-Operative

Banking Institutions

Holds financial assets for the account of others, as a substantial portion of its business

Broker Dealers Clearing Organizations Trust Companies

Custodial Banks Custodian of

Employee Benefit Plan

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 in such assets (including derivatives such as forwards, futures or options)

Mutual Funds Funds of Funds ETFs Hedge Funds Private Equity Funds Venture Capital Funds Sovereign Wealth Funds

Commodity Pools Managed Funds Collective

Investment Vehicles Life Insurance

Companies/Products

A non-financial foreign entity (“NFFE”) is any foreign entity which is not an FFI

OR

OR

Classification FFI Examples

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Classification Special Treatment & Reduced Compliance

There are certain classes of investors that are not required to enter into FFI agreements with the IRS and have generally fewer and less onerous compliance burdens than PFFIs have. These are:

Registered Deemed-Compliant FFIs ("RDCFFIs"): Investors who are RDCFFIs are required to register with the IRS and demonstrate adherence to certain procedural requirements. RDCFFIs must obtain an FFI-EIN from the IRS and renew their status every 3 years. While RDCFFIs are not entering into a binding FFI agreement with the IRS, the administrative burden to administer FATCA is not entirely reduced; RDCFFIs must still perform certain due-diligence exercises. Types of investors that may be considered RDCFFIs are local FFIs, qualified collective investment vehicles, and restricted funds.

Certified deemed-compliant FFIs ("CDCFFIs"): Investors who are CDCFFIs are not required to register with the IRS but must meet specific eligibility and documentation requirements (e.g., Certain retirement funds, non-profit organizations, FFIs with only low value accounts).

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Classification Special Treatment & Reduced Compliance (continued)

Excepted NFFEs: In general, investors that are non-financial foreign entities must make certifications with regard to their substantial U.S. owners to Company's funds (either identifying substantial U.S. owners or certifying that there are none). However, certain types of NFFEs are exempted from this requirement - these are publically traded corporations and their affiliated entities.

Exempt Beneficial Owners: Investors who are exempt beneficial owners are not required to register with the IRS or enter into an FFI agreement. Exempt beneficial owners must meet specified requirements in order to qualify as one of the exempt beneficial owner types of investors that may be considered exempt beneficial owners are foreign governments, governments of a U.S. possession, international organizations, foreign central banks of issue, certain retirement funds, and entities wholly owned by exempt beneficial owners.

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Commercial, checking, savings, or time deposit.

An account which is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument.

Any amount held by an insurance company under an agreement to pay or credit interest thereon.

… depository account

An account for the benefit of another person that holds any financial instrument or contract for investment.

Examples: depository account, a share or stock in a corporation, a note, bond, debenture, or other evidence of indebtedness.

.. custodial account

or

Financial Accounts A financial account is maintained by a financial institution and can be a depository account, a custodial account …

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or

Examples of an interest include:

― for a partnership means either a capital or profits interest in the partnership; and

― for a trust means either an interest held by a person treated as an owner of all or a portion of the trust or a person holding a beneficial interest in the trust.

… interest (equity of debt) in an FI

An established securities market includes, for purposes of chapter 4:

― Foreign securities exchange that is officially recognized, national securities exchange registered under section 6 of the Securities Exchange Act of 1934, exchange designated under a Limitation on Benefits article of an income tax treaty with the U.S., and any other exchange the Secretary may designate in published guidance.

…not regularly traded on an established securities market

Financial Accounts … or interests not regularly traded on an established securities market …

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Financial Accounts … or any cash value insurance contract or annuity contract maintained by a financial institution

Cash value must be greater zero and it is the greater of: ― the amount that the policyholder is entitled to receive upon surrender or

termination of the contract; and ― the amount the policyholder can borrow under or with regard to the

contract. the cash value is not an amount payable upon the occurrence of the event

insured against; a refund to the policyholder due to policy cancellation, decrease in risk exposure, or arising from a redetermination of the premium; or a policyholder dividend other than termination dividend.

… any cash value insurance contract or annuity contract

or

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Certain savings accounts

Retirement and pension accounts

The account is held by a retirement or pension fund

The account is subject to government regulation as a personal retirement account or is registered or regulated as an account for the provision of retirement or pension benefits under the laws of the country in which the FFI that maintains the account is established operates in and:

― The account is tax-favored;

― All of the contributions are made by the employer, government, or employee and limited based on earned income;

― Annual contributions are limited to $50,000 or less; and

― Limits or penalties apply to withdrawals made before reaching a specified retirement age or exceeding annual contribution limit.

Financial Accounts Certain accounts are not considered as financial accounts under FATCA, hence may not produce withholdable payments

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Certain savings accounts

Non- Retirement saving accounts

The account is required to meet the following requirements:

― The account is tax-favored with regard to the jurisdiction in which the account is maintained, subject to government regulation as a savings vehicle and

• Contributions to such account are limited by reference to earned income;

• Annual contributions are limited to $50,000 or less;

• Limits or penalties apply on withdrawals made before specific criteria are met under the law of the jurisdiction in which the account is maintained; and

• Limits or penalties apply to contributions exceeding $50,000.

Financial Accounts Certain accounts are not considered as financial accounts under FATCA, hence may not produce withholdable payments

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Account held by exempt beneficial owner

Term Life Insurance Contracts

A financial account that is held solely by one or more exempt beneficial owners described in §1.1471-6 or by nonparticipating FFIs holding the account as intermediaries solely on behalf of one or more such owners.

A life insurance contract, other than a contract held by a transferee for value under section 101(a)(2)10, if equal periodic premiums are payable annually or more frequently during the period the contract is in existence, and the amount payable upon termination of the contract prior to the death of the insured cannot exceed the aggregate premiums paid for the contract, less mortality, morbidity, and expense charges for the period or periods of the contract’s existence

Financial Accounts Certain accounts are not considered as financial accounts under FATCA, hence may not produce withholdable payments

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Withholding

PwC

FATCA Overview What is the IRS looking For?

US

US Foreign

Investment Fund

Under Current Law Information is

available regarding this level

Under FATCA Information will be

provided on this person

US Person

Foreign Private

Bank

Participating FFIs at this level will gather

information, report and withhold US tax against

passthru payments

USFIs will have information gathering,

reporting and withholding responsibilities similar to

those of Participating FFIs

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Withholding Will be Required in Most Cases Unless Explicitly Excluded

General Rule Withholding agent must withhold 30% of any “withholdable payment” made

to a recalcitrant account holder /non-participating FFI after December 31, 2013 unless…

Exceptions

No withholding if ― Payment is made under a grandfathered obligation ― Payment is made to certain exempt beneficial owners ― Payment falls under special rules for intermediaries

Timing

Withhold on ― Payments of U.S. source FDAP income beginning on January 1, 2014 ― Gross proceeds beginning on January 1, 2015 ― Passthru payments expected after January 1, 2017

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What Payments are Subject to FATCA?

Withholdable Payments

― Interest and dividends paid on U.S. securities;

― Gross proceeds from sale of U.S. securities that generate interest or dividends;

― Income from funds investing in U.S. assets (e.g., hedge funds, private equity funds); and

― Certain exceptions apply, e.g., payments of ECI income, ordinary course of business payments that are non financial in nature, payments on grandfathered obligations.

Pass-thru Payments

― Payment by a Participating FFI of a Withholdable Payment or other payment to the extent attributable to a Withholdable Payment. Examples include interest and dividends paid by non-U.S. entities.

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What is a Grandfathered Obligation?

A grandfathered obligation is defined as an obligation (such as a debt instrument or term deposit) that is outstanding as of January 1, 2013. Payments made on grandfathered obligations are exempt from FATCA withholding.

However, if there is a material modification to the obligation after January 1, 2013, the obligation will be considered newly issued or executed on the effective date of the modification (effectively removing its grandfathered status).

Example: U.S. Treasury bond that is outstanding as of January 1, 2013, and that is not materially modified after January 1, 2013.

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Is Tax Withheld under FATCA Refundable?

The 30% withholding tax generally may be credited against the U.S. income tax liability of the beneficial owner of the payment to which the withholding is attributable, and generally may be refunded to the extent the withholding exceeds such liability.

However, in general, refunds may be difficult to obtain from the IRS due to their processing requirements.

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Recalcitrant Account Holders

U.S. and non-U.S. account holders that fail to provide information or documentation within a prescribed period after being asked will be classified as ‘recalcitrant’ and subject to 30% withholding.

― U.S. tax forms;

― Waivers of non-U.S. bank secrecy laws; and

― Documentary evidence.

Withholding would also apply to family trusts and other vehicles used to preserve wealth if the appropriate documentation is not received.

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Timeline

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Timeline First Deadline is Fast Approaching!

USFIs and FFIs each have their own timeline.

Phased implementation starting in 2013 and ending in 2017.

Some systems and procedures need to be ready on Jan 1, 2013.

Major key dates:

― January 1, 2013: FFIs may begin to register online

― January 1, 2014: FATCA withholding commences on withholdable payments

― July 1, 2014: Need to certify due diligence is complete on high value accounts

― January 1, 2015: FATCA withholding commences on gross proceeds from sale of US securities

― January 1, 2017: FATCA withholding scheduled to commence on foreign pass-thru payments

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FATCA Timeline (for FFIs)

FFI Governance

Due diligence for pre-existing

accounts

Due diligence

for new

accounts

Withholding

Reporting

2017 2016 2015 2014 2013 2012

Jan 1 2017 – FATCA withholding expected to begin for foreign passthru payments

Sep 30 2014 – Begin limited reporting for US accounts and aggregate reporting for recalcitrant accounts (calendar year 2013) with respect to accounts identify as of June 30 2014 (Note 4)

Jan 1 2013 –Cut-off date for grandfathered obligations

Mar 15 2015 – Begin Form 1042-S FATCA reporting (calendar year 2014) for US source FDAP income

Jan 1 2014 – FATCA withholding begins on US source FDAP income

Mar 15 2016– Form 1042-S reporting (calendar year 2015) now includes gross proceeds; as well as foreign reportable amounts paid to NPFFIs

Jan 1 2013 – FFI can enter into FFI Agreement online (Note 1)

Jul 1 2014 – Certify completion of review of pre-existing high value individual accounts (Note 2)

Jul 1 2015 – Complete due diligence for all other pre-existing accounts

Jul 1 2014 – Complete due diligence for high value accounts

Jul 1 2014 – Complete due diligence for any pre-existing account holder that is a prima facie FFI

Jan 1 2016 – Two-year transition period ends for "Limited FFIs" and "Limited Branches"

Jul 1 2015 – Certify completion of account identification procedures and documentation requirements for all other pre-existing individual accounts

Jan 1 2015 – FATCA withholding begins on gross proceeds

Jul 1 2013 – New account opening procedures must be in place to identify US accounts (Note 3)

Jul 1 2013 – IRS encourages FFIs to sign up by July 1 2013 to ensure readiness by Jan 1 2014

Mar 31 2016 – Reporting on US accounts (calendar year 2015) required to include income associated with the US account

Mar 15 2017 – Form 1042-S reporting (calendar year 2016) expected to include foreign passthru payments

Mar 31 2017 – Reporting for US accounts (calendar year 2016) required to include proceeds paid to US accounts

Mar 15 2015 – Begin Form 1042 FATCA reporting

(1) IRS may make the online FFI registration system available before Jan 1 2013 (2) As part of the first certification, FFI must certify that it did not have any procedures in place from August 6, 2011 that would assist account holders in the avoidance of FATCA (3) New accounts are generally permitted a 90-day grace period before being treated as recalcitrant (4) Limited reporting includes name, address, TIN, account number, and account balance of each specified US person who is an account holder. For account holders that are NFFEs that are US owned foreign entities, report

name, address and TIN (if any) of such entity and each substantial US owner of such entity

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FATCA Timeline (for U.S. Withholding Agents) (including USFIs)

Due diligence for pre-existing and new entity Accounts (Notes 1 and 2)

Withholding

Reporting

(1) US Withholding Agents only perform due diligence on entity clients, not on individuals (2) The due diligence process must be completed prior to making a withholdable payment (3) Reporting requirements include name of the US owned foreign entity; and name, address and TIN of each substantial US owner

2017 2016 2015 2014 2013 2012

Jan 1 2013 – Cut-off date for grandfathered obligations

Jan 1 2013 – New account opening procedures must be in place to classify entity-owned accounts

Jan 1 2015 – FATCA withholding begins on gross proceeds

Jan 1 2014 – FATCA withholding begins on US source FDAP income, including payments to pre-existing entity accounts held by prima facie FFIs and documented NPFFIs

Jan 1 2015 – Complete due diligence on pre-existing non-US entity accounts

Mar 15 2014 – Begin reporting on substantial US owners of US-owned foreign entities (calendar year 2013) (Note 3) Mar 15 2015 – Form

1042-S reporting (calendar year 2014) on US source FDAP income

Mar 15 2016 – Form 1042-S reporting (calendar year 2015) now includes gross proceeds

Mar 15 2015 – Begin Form 1042 FATCA reporting

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PwC Contacts

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Varelie Croes, Tax Director International Tax – Financial Services PricewaterhouseCoopers LLP – New York, NY (646) 471-2877 v.croes@us.pwc.com Steve Vanenburg, Tax Partner PricewaterhouseCoopers Curacao +5999 430 0000 steve.vanenburg@an.pwc.com Arne Kattouw, Bureau Vaktechniek PricewaterhouseCoopers Curacao +5999 430 0455 arne.kattouw@an.pwc.com

Draft / For Discussion Purposes Only

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This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.