UNITED STATES DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

PUBLIC HEARING ON PROPOSED REGULATIONS

26 CFR PART 1 AND 301

"REGULATIONS RELATING TO INFORMATION REPORTING BYFOREIGN FINANCIAL INSTITUTIONS AND WITHHOLDING ONCERTAIN PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONSAND FOREIGN ENTITIES"

[REG-121647-10]

1545-BK68

Washington, D.C.

Tuesday, May 15, 2012

PARTICIPANTS: For IRS:

QUYEN HUYNHSenior Counsel(International)

JOHN SWEENEYSenior Technical Reviewer(International)

TARA FERRISAttorney-Advisor(International)

KATE HWAAttorney-Advisor(International)

DANIELLE NISHIDAAttorney-Advisor(International)For US Treasury:

JESSE EGGERTAssociateInternational Tax Counsel

Speakers:

TONY BURKEAustralian Bankers' Association, Inc.

HODAKA SAKURAGAWAGeneral Insurance Association of Japan

MURILO PORTUGAL

FEBRABAN JOSEPH GREENDemocrats Abroad

JOHN BROGDENFinancial Services Council

ARSALAN SHAHIDFinancial Information Forum

REIKO DALJapanese Bankers Association

YUTAKA YOKOTAJapanese Securities Dealers Association

JONATHAN SAMBURSwiss Bankers Association

TOMOHIRO YAOLife Insurance Association of Japan

KEITH LAWSONInvestment Company Institute & ICI Global

MICHAEL EDWARDSWorld Council of Credit Unions, Inc.

NICOLE R. TANGUYSIFMA

ANDREW BARKINInstitute of International Bankers

DARREN HANNAHCanadian Bankers Association

PETER VAN DIJKTD Bank Group

HARRIS M. HOROWITZBlackRock

ELLA GRUNDELSwedbank

SARA OLSSONSwedbank

FREDERIC BATARDYEuropean Banking Federation

MICHAEL BERNARDTax Executives Institute, Inc.

JACOB BRAUNThe Bank of New York Mellon* * * * *

PROCEEDINGS

(10:23 a.m.)

MS. HWA: Our first speaker is Mr. Tony Burke from the Australian Bankers' Association. Actually, before Mr. Burke comes out, I just want to remind everybody you've got 10 minutes, at which point when -- you'll get a 3 minute -- the yellow light will turn on and you should start thinking about concluding your sentence. And when the red light comes on, I will ask you to conclude your remark.

All right. So, Mr. Burke, you're up.

MR. BURKE: Good morning. My name is Anthony Burke, Policy Director of the Australian Bankers' Association. I'm accompanied by Mr. Michael Barber, General Manager, Tax at Westpark Group, and today we're representing both the Australian Bankers' Association and the New Zealand Bankers' Association.

I speak Australian and a little bit of Kiwi, so I will speak carefully within my 10 minutes. But an American colleague of mine has volunteered to do simultaneous translation if it's a problem. We appreciate the opportunity to appear before you today and the many opportunities we've had to work with the Department and the Service on the development of rules to implement FATCA. Working toward a balanced approach to implementation of FATCA is a top priority for our member banks and we have diverted substantial effort to the tasks through our many comments and our several trips to Washington. We wish to underscore our support for the act's objectives and express our appreciation for the changes that the Department and Service have made in response to comments by us and many others.

Many challenges and difficult issues remain, and this morning I want to promote further discussion by highlighting key aspects of our April 30 submission. Our key priorities are: Simplifying the customer identification reporting obligations through alignment with existing processes; an intergovernmental between Australia and the United States and between New Zealand and the United States; deemed compliant or comparable status for superannuation funds, retirement funds, and other low-risk of tax evasion entities; allowing for the quarantining of branches/affiliates in countries where compliance cannot be achieved; and development of a workable pass-through withholding mechanism.

Firstly, alignment with AML/KYC practices. Home country AML/KYC laws should be applied except in those cases where the mandatory provisions affect or preclude such an approach. We urge the Treasury and the IRS to continue to work in that direction, so that there's an operational system which can be simply and readily complied with through existing systems and administrative procedures at the banks. We commend Treasury and IRS for acknowledging that there needs to be greater reliance on existing AML/KYC practices, but note that there remain a number of areas in the proposed regulations where further alignment is needed which are detailed in our written comments.

AML/KYC is fundamental to customer identification, verification, and reporting by financial institutions worldwide, including Australia and New Zealand. And a high level of alignment, a factor with AML/KYC, will assist in compliance and result in a more efficient and effective framework for FATCA identification and reporting.

Some examples of where an enhanced environment would be a significant benefit are: Reliance on government issued identification even where such identification does not strictly meet the requirements of the draft regulations, for example, a passport doesn't have an address; no need to retain documentation used to identify a customer, with citing and noting of pertinent details being sufficient; no requirement to re-identify our customers with documentation that was initially used to identify has expired unless the FFI becomes aware of a change in circumstances or risk; reliance on current AML standards to identify U.S. ownership and the standard for AML is 25 percent with a requirement to look down to a FATCA ownership level of 10 percent, only if there are indications of the existence of such small ownership interests and acceptance of the identification processes for pre-existing clients.

IGA Framework and transition period. We have long advocated reliance on existing government to government reporting mechanisms, and are pleased with the initiative underway to develop and maintain the IGA framework which will provide both simplification and relief from certain home country legal restraints that would otherwise be faced by FFIs in countries which enter into an IGA. The ABA is working with the Australian government and the NZBA is working with the New Zealand government on the expectation that both countries will enter into an IGA. We are firmly of the view that an IGA is the best path to allow the resolution of a number of threshold legal issues that may otherwise inhibit the proper implementation of the FATCA regime by Australian and New Zealand FFIs.

We acknowledge in our submission that negotiation and finalization of an IGA will have or require considerable time and effort. Accordingly, we have requested that once MOUs between the United States and our two countries have been signed, which demonstrate an intention to enter into an IGA, branches and entities operating in our countries can proceed on the basis that the provisions contained in the IGA apply.

Low risk of tax evasion. We appreciate that the Department of Service have exercised their discretionary authority provided by FATCA to exempt certain funds that present a low risk of tax evasion. We urge the further step of clearly classifying our superannuation funds as deemed compliant for providing them the comparable relief. We have said yesterday -- modified regulation for deemed compliance status for superannuation funds. To be deemed compliant, the fund would have to satisfy the following elements: The account is supervised and tax-favored; it is subject to substantial penalties for excessive contributions and early withdrawals; all contributions are

employer, government, or employee contributions; there are regular reports to national tax authorities and the home country as part of a tax treaty or IGA with the United States.

Quarantining of noncomplying branches. The proposed regulations allow for FFIs that are domiciled in Australia and New Zealand to be compliant even when those FFIs have limited affiliates or branches that are located in countries whose laws and regulations make it impossible for them to fully comply with FATCA. Now when such compliance expires on 31 December 2015, exacerbation rises two points. First, we have requested an extension of time to 31 December 2017 to allow for our FFIs to persuade local governments to allow for FATCA compliance in these jurisdictions. And to the extent the legislative change is not forthcoming, to develop strategies to address the inability to comply in those jurisdictions. Secondly, we have proposed that the FFI should be able to quarantine or orphan the limited affiliate or branch and treat such affiliate branch as a nonparticipating FFI without impacting the compliance status of the FFI and its other complying branches and affiliates.

Pass-through. Pass-through remains a difficult and challenging topic. We appreciate the postponement in the proposed rules of the effective date for this requirement, as well as the relief from pass-through withholding for recalcitrant account holders who would accompany entry into an IGA.

We had previously offered a pass-through proposal and our April 30 comments offer a new one focused on the Blocker concept. The Blocker proposal is intended to address, in a construction manner, concerns that some have in terms of gaining access to U.S. capital markets remains that will enable them to do so without exposure to FATCA.

A Blocker can be broadly defined as an entity whose primary business is recharacterizing U.S. source income as foreign source income. In order to be classified as a Blocker, the following needs to apply on our suggestion: The entity must be a participating FFI. It would not be an FFI as defined in the regs that accepts deposits on the ordinary course of banking or similar business on the basis that it's highly unlikely that the potential -- prudential regulator, rather, of an FFI would approve risk management practices that allow for disproportionately large allocation of the FFIs assets to be invested in a single market, especially outside the home jurisdiction. Participating FFI classifications of Blocker would be determined by reference to specific tests such as an ownership test and an assets test. In addition, any participating FFI with more than 50 percent of interest held by nonparticipating FFIs, or recalcitrant account holders, would automatically be classified as a Blocker. The Blocker will be obliged to deduct and withhold tax with respect to foreign pass-through payments by applying the pass-through payment percentage made to recalcitrant account holders and nonparticipating FFIs. If payment and withholding tax levels are above a specified but realistic and practical de minimis level which suggests that withholding tax be deducted on any payments if withholding tax amount exceeds the de minimis level.

We seek your guidance on how best to proceed with this approach. For each of our recommendations in our submission, we've suggested revisions to the pertinent proposed regulation. Our submission also includes data on some other more technical issues not covered in my remarks today.

I look forward to continuing to work with the Treasury and the IRS, tomorrow for example, and the implantation of the act and the development of multilateral approaches to combating tax evasion. Thank you very much.

MS. HWA: Thank you. Next we will hear from Mr. Sakuragawa. Sorry if I butchered your name. Ready when you are.

MR. SAKURAGAWA: Good morning. Thank you for the opportunity to testify today. My name is Hodaka Sakuragawa. I am here as our representative of the General Insurance Association of Japan, also known as GIAJ. GIAJ is an organization representing 26 licensed general insurance companies which account for about 95 percent of its total general insurance premiums paid in Japan. As I only have limited time today, I would like to focus my testimony on key items for in the comment letter that the GIAJ submitted last month. My discussion today will be mainly about total loss lapsed contracts which is a category of a general insurance contract in Japan with a savings element. The proposed FATCA regulations released on February 8th this year define cash value insurance contracts as insurance contracts with cash value greater than zero. Please note that total loss lapsed contracts account for only a small portion of general insurance contracts issued in Japan, and if these contracts are exempted from FATCA the remainder of general insurance contracts issued in Japan is completely outside the scope of FATCA.

In our comment letter, we requested that the total loss lapsed contracts which meets the following requirements be treated as pure protection insurance and exempted from the FATCA provision.

First, at the time of entering into an insurance contacts, the policy holder is a resident of Japan.

Second, in the event of damage to insured property and person such as buildings, furniture, personal injury, or fiscal damage, when the full insurance benefits are paid out, the beneficiary loses the right to receive any maturity refund.

Third, any payment of insurance benefit or maturity fund is to be deposited into a bank account maintained by a participating or deemed compliant foreign financial institution in Japan.

Please take a look at the appendix on the last page of the document we submitted. Figure 1: This figure shows a visual image of "Total Loss Lapsed Contracts." You can see from this figure that if the maximum amount of insurance benefit is paid out, due to loss of property, the policyholder will not receive any maturity refund or any portion of the aggregated premiums paid.

Total Loss Lapsed Contracts sold by Japanese general insurance companies essentially insure against damage resulting from incidental accidents in everyday life. These contracts insure against damage to buildings or furniture located in Japan and covers costs of hospital care and hospital visits for deaths resulting from personal injury of residents in Japan.

For example, in the event that there is complete damage to buildings covered by fire insurance, and the full insurance benefits are paid out, none of the maturity refund or insurance premiums paid will be returned to the policyholder.

Unlike standard financial products, we consider these products to be insurance contracts providing pure protection, in the event there is accident resulting in total loss of the insured property. Hence, these insurance contracts do not have any cash value in the event of total loss.

In addition, as we noted in our comment letter, we believe the possibility of Total Loss Lapsed Contracts to be used for tax evasion by U.S. persons is extremely low for three reasons. Fist, I'd like to point out the restrictions placed on foreign insurance companies. Insurance regulations in the U.S., basically, with certain limited exceptions, prohibit foreign insurance companies from issuing contracts that insure U.S.-based risks. Thus Total Loss Lapsed Contracts are not permitted being issued in the United States.

Next, I want to point out the product features. Unlike other financial products, Total Loss Lapse Contracts are regulated under domestic law and regulations. Therefore, such contracts cannot be transferred to insurance companies or other companies located within and without the country of its organization.

Finally, I want to comment on the tax system in Japan. Japanese residents are required to pay tax on income earned in Japan. Furthermore, when Japanese general insurance companies pay a refund in excess of a specified amount, they must submit a payment record to the tax office in Japan. Therefore, based on the reasons that I just described, we believe the possibility for such contracts to be used for tax evasion is very low.

As for details of my discussion today, I ask that you refer to the comment letter GIAJ submitted last month. We hope you will note that there is almost no possibility for Total Loss Lapsed Contracts issued by Japanese general insurance companies to be used for tax evasion by U.S. persons. Thank you very much for your time today.

MS. HWA: Next we'll hear from Mr. Portugal.

MR. PORTUGAL: Good morning, everyone. I want to thank for the opportunity to speak this morning. My name is Murilo Portugal. I'm president of FEBRABAN, the Brazilian Banks Federation, which represents 121 banks out of the 157 banks in Brazil. Our associates account for 97 percent of the banking market in Brazil. The comments I make today are summary of the letters we sent to the IRS in December and April last which we ask to be taken in full consideration.

First, I'd like to state clearly than that FEBRABAN and its associated banks wish to cooperate with the U.S. government and IRS in the implementation of FATCA as completely as we reasonably can. We agree fully with the objectives of fighting tax evasion and tax avoidance and achieving greater transparency in fiscal methods and we understand that in globalized financial markets, these goals cannot be achieved without international efforts. We made extensive and good-faith efforts to understand how to implement FATCA in Brazil. We hired legal counsel in the U.S. and in Brazil, and we had a group of experts examining the issue. Our conclusion is that there are two types of problems in Brazil: Legal problems and operational problems. But we believe that these difficulties can be overcome, but that would require the goodwill and the flexibility of the IRS and the U.S. government.

I would like to give you, briefly, dimensions of the Brazilian market. We have about 193 million people living in Brazil, 4.3 million legal entities. The Brazilian banks have 141 million deposit accounts plus 97 million savings accounts. There are more than 11,000 investment funds and the total size of the market is 2 trillion dollars. And last year we had 56 billion banking transactions. So, this gives an indication of the scale of the operational problems, if FATCA regulations are not substantially simplified.

Let me turn to the legal aspects. We, as currently established, cannot implement FATCA in Brazil because we don't have legal cover for that, and the banks would be liable for legal suits if they tried to do some of the behaviors that FATCA requires them to do. What's the solution? We think that the joint statement published by the U.S. with certain countries offer that solution, and we believe it is a very fruitful approach to ease legal restrictions. In Brazil, when we are willing to work together with the U.S. and the Brazilian authorities for a quick

delineation and implementation of that system, we think that the tax information agreement, which at the same time contains clear reference to FATCA, would solve most of our legal problems.

Of course, for implementing that, we still require information from the U.S. government on how they intend to implement such an approach which is the legal form that these commitments will take and so on. But banks in Brazil already inform the Brazilian tax authorities annually on all bank accounts on the balances on 31st of December of the previous year, the current year, and also on the income. So, the question would be, really, to try to identify among those the American account holders.

Regarding operational issues, we presented proposals for simplification, all in relation of the pass-through concepts and rules, and expansion of the lists of financial institutions and funds that I deemed are compliant with FATCA. The definition of financial institutions according to local laws of the country they operate, and also the definition of beneficial owner according to existing international loyal customer practices. A more active role for the U.S. financial institutions in implementing FATCA and a simplification for the rules for transactions among financial institutions and for compliance and reporting.

On pass-through rules, we think they are extremely complex to compute. Financial institutions were required to classify all their assets according to FATCA treatment. They would have, on a daily basis, to obtain pass-through payment percentages for all its financial accounts, and this is not the way financial institutions operate.

Considering all these difficulties, we suggest that the final regulations abandon the concept of pass-through payment and work through a methodology of direct allocation of U.S. assets which we explain in our legal -- in our written comment. We also suggest to have a de minimis safe harbor rule under FATCA, according which if a participating financial institution has less than 5 percent of U.S. assets over total assets, its pass-through percentage should be zero.

Regarding the deadlines, we think that after the rules are established for pass-though, we would need at least 5 years to be able to put operational systems in place. Regarding financial institutions that should be deemed compliant, we propose an expansion of the definitions for a number of institutions that present a very reduced risk of tax evasion like pension plans, certain capitalization entities, a special credit, and securitization vehicles for was for real estate and agricultural investment.

And also, we suggest that the rules, that they establish that the foreign financial institution could act as an administrator of investment funds. We have currently more than 11,000 investment funds in Brazil, but only 150 banks that are managers of these investment funds. So, we suggest a centralization of the registration of investment funds through the banks. That would simplify very much compliance.

Regarding the definition of beneficial owner, we suggest that the IRS adopts the accepted "know your customer" threshold of 25 percent instead of 10 percent.

And regarding the role of U.S. financial institutions, we propose that they act, always, as the withholding agent of under source payment for FATCA and for due diligence and reporting. Regarding transactions among financial institutions, the system currently is very complex. There are 22 different classifications that can be applied. We suggest that the IRS considers issuing an EIN tax

identification number for the institutions that are deemed compliant. And so, only one electronic registration would replace the certification that has to be issued on each and every type of transaction among financial institutions. And we suggest the acceptance of electronic certificates as well.

I think these proposals would reduce substantially the impact of FATCA on inter-financial markets that is based on electronic and automatic exchange of information and payments.

So, these are some practical suggestions that we wish to share with you and with all the entities and associations that are represented here today, that we think would very much ease the burden of implementing FATCA. Thank you very much.

MS. HWA: Next we will have Mr. Green, representing Democrats Abroad.

MR. GREEN: Hi, thanks for having me. I'm Joe Green and I feel intimidated. I'm a former dean of a university fine arts faculty and I never felt intimidated in front of 1,500 kids, all of whom thought they were better than we were as teachers, nor in front of the faculty of 150, all who knew they were better than I was. But I see in front of me a sea of corporate and association representatives in the financial world.

I will tell you, ladies and gentlemen, that I'm here with Democrats Abroad and my colleagues on the task force that we have established who represent your clients: The people who bank with you, who insure with you, who live with you around the world. I've been in Canada for 42 years going up to start this fine arts operation and my bank -- and I see that TD is represented here, who's my bank -- to me is a local bank. It's not a foreign bank to me. I don't bank in the U.S. My retirement program is solely with a Canadian institution. My wife's retirement is solely with the teacher's pension plan. And millions of us -- hundreds of thousands of us around the world face the same problems.

The escalation in tax filing and complexity and the associated angst that's created is more severe than perhaps you recognize. We hear it all the time. I have, for anyone who wants it at the end of my presentation, a survey that we have done with 2,800 responses in a week from around the world with a number interesting insights.

We are concerned with privacy issues and we've heard about that already today and we'll probably hear more today, especially regarding assets shared with non-national spouses and partners. A woman whose husband is a non-U.S. citizen and has a joint account is required, we understand, to report that husband's holdings to the IRS. This has led to many serious familial and relationship problems. There's been talk of divorce.

There's certainly been talk about putting assets in one -- in the name of the husband, in which case the wife is vulnerable. If all the assets are with the non-American husband and the marriage, which of course will never happen, goes on the rocks, where is the woman? With no support. U.S. citizens, we feel, who live stateside are not subject to this kind of scrutiny. The IRS is not asking for my brother, who lives in Fort Myers, to report on his holdings. But they're asking me and hundreds of thousands of others around the world to report holdings that you guys have for us.

We've also heard, and some of this is rumor but some of it is substantiated -- and I know that the IRS and Treasury think that anonymous responses are suspect; we are not making this up -- that Americans living abroad in Germany and other countries have been refused accounts in what they consider to be their local banks because they're American citizens and because the banks don't want to deal with them. What is the American citizen supposed to do?

We haven't even talked about the accidental Americans yet, and that's the child who was born of foreign parents when they were at Cornell doing their Ph.D. They go back to their country as foreigners and take the baby home. Twenty-five years later, the baby is now a noncompliant American. He or she didn't even know that he or she was an American. There's a tremendous amount of anger, I would point out to you, amongst this group about being considered that.

We know that we are supposed to be compliant. It says it in our passports. We're aware of that, and many of us have not done it through ignorance -- ignorance is no excuse, we understand -- naivety, lack of English, they can't read the passport, and it's pretty fine print. So we are really coming to the IRS, to Treasury, and to Congress to seek redress for those of us living around the world who have to do our local banking.

And I would point all of us to Nina Olson's 2011 report to Congress, the taxpayer advocate who takes the IRS, with all due respect, to task for how they handle overseas citizens and the reporting requirements. I'm sure you've read all that and I'm sure you've read our submission.

There's also discriminatory impact on U.S. senior managers in foreign corporations. If they have signing authority, do they report the corporate holdings of that corporation? We have heard that certain corporate officers in foreign institutions who are American are being refused a promotion because it puts the company in a vulnerable position.

There's a weakening of entrepreneurial activities on the part of Americans abroad who represent, very frequently, American interests: Commerce and sales. The solutions that we seek are to redefine foreign or offshore accounts to reflect the needs of Americans abroad. How you do this, we don't have solutions. I don't have any answers as to how you do this. I'm not a lawyer. I have a Ph.D. in dramatic theory. I can't even read your 388-page document and I only have one eye, which makes it even worse, so I read half of it.

We request that you raise the FATCA reporting threshold. Ten thousand dollars in 1970 may have been a lot. It's a little weird today. Anybody that doesn't have $10,000 and is living abroad is in really deep trouble. Maybe you could index the FBAR reporting threshold, exclude those who do not owe taxes from the requirement to file that onerous 8938, which to many of us looks like the FBAR, but different.

And when Mr. Shulman says on television that he doesn't do his own tax forms because it's too complex, think about us out there with the five or six forms. Now we have to pay for this. And fine, when you live abroad, there are certain responsibilities you take on yourself. Understood. But the penalties that are being proposed are really scary to Americans living abroad. We suggest that you consider merging the FBAR reporting requirements with the developing FATCA legislation so that the Americans abroad do not have to deal with two sets of legal entities.

Finally, we suggest -- in my minute and 22 seconds left -- that the IRS and Treasury consider offering an amnesty, not like the Voluntary Disclosure Program, but an amnesty to invite American citizens who are naive, ignorant, unaware of the reporting requirements to come in, file their forms, pay their taxes if they owe any, which is unlikely in many, many cases, and become compliant U.S. tax filers. The only other thing you could do is start to tax on residency as every other developed country in the world does instead of on citizenship. I don't see that happening, but that would solve a lot of problems for the Americans living abroad.

That brings me to the end of my presentation. I do have our survey for those that are interested. I brought a bunch down with me, stopping at Staples to have it duplicated. And I thank you for the opportunity to express our woe. Thank you.

MS. HWA: Thank you, Mr. Green. Next we'll hear from Mr. Brogden from the Financial Service Council.

MR. BROGDEN: Thank you very much. I have both of my eyes working. I can read the 300-page document, but I do have an Australian accent. So as Winston Churchill once said about Great Britain and the United States, two great nations divided by one great language. My name is John Brogden and I'm the chief executive officer of the Financial Services Council of Australia.

I've been joined by my colleague, Carla Hoorweg, senior policy manager for tax and global markets at the Financial Services Council. The council both recognizes and appreciates the open and transparent process that the Department of Treasury and Internal Revenue Service has and is facilitating on the proposed FATCA regulations. And in that spirit, I thank you for the opportunity to address this hearing today. We understand the intention of U.S. lawmakers in relation to FATCA and we appreciate the opportunity to work with the Treasury and the IRS in further developing the regulations.

The Financial Services Council represents Australia's wealth management industry. This includes retail and wholesale funds management businesses, life insurers, trustee companies, and financial planning licensees. The Financial Services Council also represents Australia's private pension industry known domestically as superannuation. Australia's superannuation industry is significant: at one point, $3 trillion Australian, which on current exchange is a little more than $1.3 trillion U.S. It is the fourth largest private pension system in the world.

To put that in context, the size of Australia's gross domestic product is $1.3 trillion. Australia's total funds or assets under management is $1.8 trillion. The driver behind the size of the superannuation systems is the creation of the superannuation guarantee in 1992, federal law that requires employers to contribute 9 percent of each employee's salaries into forced retirement savings plans.

Every employer must contribute, whether the employee is full time, part time, or casual. Employers are required to pay superannuation contributions for all employees aged 18 to 69 years inclusive and who were paid at least $450 before tax in a calendar month. In April this year, the government legislated to increase the amount contributed from 9 to 12 percent by 2019. The clear policy intent supported by law, rules, and practice is that all money saved to be accessed and used for and only at the retirement phase.

The preservation is the age at which -- the preservation age is the age at which the funds can be withdrawn. And there is between 55 and 60 depending on the year in which the employee was born. Accessing funds in superannuation before the preservation age is extraordinarily difficult. It is not possible to withdraw funds early except in a small number of extreme circumstances. The law places the onus on the employer to ensure contributions are made to an account on behalf of an employee. As such, the citizenship of the employee is not relevant and there is no requirement to capture the citizenship of an employee for the purpose of establishing a superannuation fund.

Failure by an employer to pay the required amount of the superannuation on behalf of an employee results in financial and administrative penalties in addition to fines. Penalties and fines are imposed by the Australian Taxation Office which is responsible for the administration regulation of the employers obligation to pay superannuation. In addition to this regulation, Australia's prudential

regulator, the Australian Prudential Regulatory Authority, enforces the prudential obligations of the funds.

While superannuation in Australia is tax effective, it is not tax exempt. Contributions are taxed 15 percent, earnings are taxed at 15 percent while it's in the fund, and contributions are distributed tax-free -- I'm sorry -- distributions are tax-free. In addition, the amount contributed is restricted. Tax advantage contributions are kept at $25,000 per annum. Any further amount incurs a substantial penalty of up to 93 percent.

As such, our clear proposition is that the Australian superannuation system is not a readily accessible vehicle to hard assets. We submit that Australia is a low-risk country for tax evasion by U.S. financial account holders. This is for a number of reason. Firstly, the number of U.S. citizens living and working in Australia represents less than .2 percent of Australia's population, or less than 46,000 people. Secondly, the proportion of funds sourced from overseas investors is very low at less than 3.5 percent. Thirdly, Australia's existing AML/CTF laws are robust. This has been recognized by the Financial Action Task Force.

In short, Australian superannuation funds are not a tax haven. They are the result of a strictly enforced government policy designed to ensure every Australian will be financially secure in their retirement years. Further, Australia has a very strong and longstanding relationship with the United States evidenced in a series of treaties and intergovernmental agreements, which include the Australia-U.S. Free Trade Agreement and the Double Taxation Treaty between both nations. We acknowledge the intention of Treasury and the IRS to exempt genuine pension funds from FATCA. However, unfortunately, currently Australia's superannuation funds do not meet any of the exemptions available in the draft FATCA regulations aimed at retirement schemes. As such, the Financial Services Council seeks inclusion for Australian superannuation funds under the exempt beneficial owner category. The Council's 30 April submission outlines potential criteria that would allow Australian superannuation schemes to fall within the definition of exempt beneficial owner.

This would mean that superannuation fund trustees would be deemed compliant for the purpose of FATCA. Briefly, these criteria include that the FFI, one, is supervised or licensed by a government-appointed regulator according to legislation. Two, has a sole purpose to provide retirement benefits. Three, restricts payments of benefits according to legislation which determines that the benefits are based on age or other retirement criteria and imposes severe financial criteria of penalties for noncompliance. Four, reports regularly to the National Tax Authority on contributions. And five, is domiciled in a country with an agreement with the U.S. regarding implementation of Chapter 4, a double taxation treaty, or information exchange agreement.

We have provided more information and detail around these criteria in our submission. We welcome the joint statement between the U.S. and various European nations and see this as an opportunity for Australia to overcome many of the legal barriers to complying with FATCA.

Similar to France, Germany, Italy, Spain, and the United Kingdom, certain FATCA requirements conflict with local privacy and other laws. We are in discussions with the Australian government to pursue the outcome, and our government has had discussions with the U.S. government to date. We proposed that once a Memorandum of Understanding has been reached between governments, that FFIs operating within the partner country can operate on the basis that the IGA will be finalized in due course.

In relation to customer identification, we submit that the Australian AML/CTF laws are sufficient to meet FATCA's standards for all existing and new customers. Australia has robust FATCA-compliant local laws and we urge the IRS and Treasury to allow both identification and verification of customers to be carried out under these local laws. Further, we see this as a key element of an IGA. An IGA would also assist to alleviate compliance issues facing Australia's managed funds industry. Inclusion of a reporting regime that covers managed investment funds in addition to superannuation funds will be critical to both for the ability to comply. We submit that the current reporting regime for these investment vehicles to both the investor and the Australian Taxation Office is sufficient to enable the IRS to ascertain global income information in relation to U.S. taxpayers.

As I indicated earlier, the Financial Services Council represents Australia's life insurance industry. In our submission we outline the operation of annuity products issued by life insurance companies and recommend that they be exempt from classification as a financial account due to their regulation under the Australian Taxation System. And we strongly support the decision to delay the imposition of withholding on foreign pass-through payments.

We express our willingness to work with you to develop a workable solution. Thank you again for the opportunity to appear here today, and we look forward to working with Treasury and the IRS on the implementation of FATCA in the future.

MS. HWA: Thank you. SPEAKER: Excuse me, are we going to take a break at all – MS. HWA: We were planning on going straight through if you are.

SPEAKER: Okay.

MS. HWA: So next we will be hearing from Arsalan Shahid, who's representing Financial Information Forum.

MR. SHAHID: Hello, everyone. My name is Arsalan and I represent the Financial Information Forum. We'd like to thank the IRS today for giving us the opportunity to speak at this public hearing. The FIF provides a centralized source of information on the implementation issues that impact the financial technology industry across the order life cycle. Therefore, our participants include trading and back office service bureaus broker-dealers, market (inaudible) vendors and exchanges. Through topic-oriented working groups FIF participants focus on critical issues and productive solutions to technology developments, regulatory initiatives, and other industry changes.

Today I'd like to focus on implementation issues that our group has identified with the FATCA proposed regulations. As you may have read in our letter, we requested additional comment time and also we stress the importance of publication of the draft forms, the form W8 and the FFI Agreement, which is crucial to the successful implementation and completion of this project. I'd like to stress on a couple of implementation issues right now.

First of all, why have we requested to harmonize the new account opening procedure dates for both U.S. FIs and FFIs? And what kind of system changes are involved here? So technology changes of this magnitude are executed according to a very formal software development life cycle, or SDLC, which most of you may have heard. This covers the careful coordination around design programming and testing across multiple touch points involving the change.

For FATCA, especially for getting ready for the initial period, firms will need to create new forms and clear instructions for their clients to follow in order to properly classify themselves and comply with the necessary documents needs. Scanning systems will need to be updated for the changes to forms and adding the new accounts on these forms. The client databases in the back end, they'll have to be modified to include the new information, the new U.S. indicia which is going to be required. Each data element or bucket, it may need edits and cross-updates or corrections, operations in the field. So, therefore, the home offices around the globe will need training procedure manuals, which will need to be updated, et cetera.

All of these changes, they go through rigorous testing procedures. There is unit testing involved. There's integration testing, regression testing. There's implementation and post-implementation testing to ensure that the product works as designated and that it works in an environment which is designed such that the changes do not impact other related processes.

It is one thing which we have uncovered is the highly intricate nature of FATCA. So significant changes like these typically in small, medium-sized, large organizations, they take 9 to 12 months because, as all of you know, the U.S. securities industry is highly complex. It's interrelated, there are a lot of moving parts, so we need to be cognizant of that.

Therefore, if final regulations are published in August, the industry will be short on time to get ready for 1-1-2013, which involves not only analyzing and developing the systems, but also doing modifications to systems to support new W8 and new indicia tracking process and coordinate W8 with AML and KYC to implement tests, install, and train the new staff.

So just to repeat, to ensure uniformity, it is critical that PFFIs and U.S. FIs have consistent starting dates and transitional periods for FATCA compliance. And this is all because of -- to establish, train, and test everyone to start handling new accounts separately. The industry typically needs 8 to 12 months because changes are planned by April 30th for compliance with regulations. So we also need to minimize impact on customer accounts. Also, we should not forget that there will be a period in which there will be a dual processing of new accounts versus pre-existing accounts, which causes an increase in development and testing.

Now I'd like to cover a little bit about gross proceeds withholding and what kind of an implementation impact is involved there. So this factor, the gross proceeds withholding effective 2015, represents a shift from existing end of day batch reporting standard that currently exists today. So there's a change not only in policy, there's procedures, there's systems involved. This requires PFFIs to build new systems which will operate in real time -- the emphasis is on "real time" -- to deduct withholding on a transactional basis.

Even for the withholding qualified intermediaries, QIs, they'll be required to become PFFIs, but reporting for gross proceeds was historically never required. So when we have these brainstorming sessions, some of the programmers in the room, they bring up some issues, and I'll just rattle off a couple of them.

For example, many customers today are selling in one account, buying another security from the same account with proceeds as they become available. So today the proceeds for a sale, they stay in the customer account and they're using the purchase of the next security or whatever asset they'd like to purchase. But if you have to withhold on gross proceeds for the first transaction, then the programming challenge is to keep track of all these changes in the various real time and with the various systems.

Also, some firms are thinking that if withholding is done in real time, there is a chance that the customer's account could run out of money at the end of the day. So they could find themselves in a deficit situation, since systems automatically withholding 28 percent could cause a drop and which could trigger some of the margin calls or other charges, penalties -- that would be adverse.

Now I'd like to move on to the leering piece of Chapter 4 on top of Chapters 3 and 61. So as we know, withholding and reporting systems require extensive bandwidth for the vast multitude of FATCA account classifications. And sufficient time is needed to engage in extensive internal and client testing for the layering of Chapter 4 on top of 3 and 61.

So initial FIF member feedback regarding chapter over withholding indicates that changes impact systems processes for handling inclusion of gross proceeds, monitoring the status of grandfathered obligations, and the design of refund and rebate processes and asset classes with varying settlement processes. In order to support these and additional Chapter 4 requirements, modifications to rules in Chapters 3 and 61 may be a necessity which will require coordination and extensive testing. And keep in mind, when you talk about changes to Chapter 3, now you are not just talking about U.S. FIs and FFIs. There's a whole new world out there. Systems will need to be built to track issue dates for purposes of grandfathered debt obligations, AML/KYC documents, and issuance of specified notional principal contracts, such as equity swaps, for purposes of section 871(n). These various payment systems will need to be enhanced, modified, and augmented to accommodate FATCA parameters for multiple income and product modules within the firms such as dividends, fixed income, equities, mutual funds, and proceeds payments systems.

And one last example is on grandfather obligations. So when you're trying -- when an obligation changes substantially, then it is considered reissued. We all know that. So how does it work in the back end?

The system is set up typically -- it's set up in the security master. So the security master has an issue date and the system has to use that date to determine if it is grandfathered or not. Now when the CUSIP changes, when the obligation is reissued or it changes significantly, the challenge is how will the various programs or reporting systems know where to look for? What is the flag? You know, how will they coordinate this change of date between the security master and then link it to the new date?

These are some of the challenging issues that I wanted to point out today. And that's about it from my side. There are other pieces that we covered: DVPR repeat reporting and you're retaining this existing eyeball test. I'm short on time but I'm sure other participants, other speakers will cover that and the importance of that.

So I'd like to thank the IRS today for listening to our comments and we look forward to working with them. Thank you.

MS. HWA: Next, we'll hear from Reiko Dal from the Japanese Bankers Association.

MS. DAL: Hi, my name is Reiko Dal. I will be representing the Japanese Bankers Association. Japanese Bankers Association appreciates the opportunity to state our opinion today. JBA is a trade association whose members consist of banks and holding bank companies and bankers association in Japan. It has 249 members in total.

JBA fully understands the background and progress of FATCA in the United States is to prevent tax evasion. Many other countries have attempted to cope with this issue, and JBA also supports these efforts and concepts. The joint statement from the U.S., France, Germany, Spain, and the United Kingdom regarding the intergovernmental approach to improving international tax compliance and improving FATCA, which was issued at the same time as the FATCA proposed regulations represents great progress on FATCA implementation.

However, JBA has some concerns over the proposed regulations and the joint statement. First, as for the joint statement the success of this approach of a partner country would depend on how many countries would support this idea to become a FATCA. In the event, many countries choose not to become a FATCA partner with even heavier burdens to deal with different cases imposed on FFIs, whose headquarters are in FATCA countries and operate globally as well as regionally, which would be born by FFIs. JBA is also concerned that FATCA partner countries may not really take advantage of its status because of the reasons described above, and its incentive to join in intergovernmental frameworks, such as FATCA partnership, may not work.

Secondly, the JBA is also concerned about the effects of withholding on past repayments on international financial markets. Global payment systems do not have any uniform standards for settlement, and every country has a unique settlement system. Therefore, there is no capability of dealing with a withholding tax and a FATCA because many financial agents or intermediaries are involved in various settlements.

If withholding and the FATCA is implemented without any solution to this problem and if FFI located in known FATCA partner countries would be subject to withholding tax, settlements related to such FFIs will be affected seriously.

On the other hand, there is concern that the financial market of a country that joins the intergovernmental framework such as FATCA partners would shrink. Companies from countries that do not join an intergovernmental framework would refrain from investing in a FATCA partner country for the reasons that withholding tax would be imposed on the investment in such a country, which deters investment capital.

The disruption of the financial system due to problems described above would also disturb the sufficient flow of funds in international transactions globally, which means that the international community itself has to be a burden regardless whether an intergovernmental framework exists or not. In that respect, JBA has to raise these concerns.

Lastly, JBA is concerned about the heavy administrative burdens imposed on each FFI. As for the proposed regulations, the level burdens imposed by FATCA is still far more than what is required on the global KYC, AML, and other bank's regulatory requirements, despite the fact that the regulations imposed on FFI's regulatory list.

In addition, there still remain quite a few issues with uncertainties for which each FFI would likely face judgmental or practical difficulties. These are matters of the utmost concern to make the framework of FATCA more practical. Based on the above, JBA hereby requests withholding four points with respect to overhaul framework of FATCA and intergovernmental limits.

First, JBA requests flexible approach on expanding an intergovernmental framework. JBA would like to request that the IRS and Treasury relax requirements on intergovernmental frameworks so that

all countries and international financial institutions who are generally located can join an intergovernmental framework such as FATCA partners.

Secondly, the JBA requests appropriate treatment for a country that does not join an intergovernmental framework. It is extremely unreasonable and unfair that punitive withholding tax would be imposed on a participating FFI, or on an overseas branch or subsidiary over an FFI that exists in an nonparticipating country in nongovernmental agreement. This issue should be resolved. For example, for an overseas branch or subsidiary that is a member of an expanding affiliate group of an FFI and that cannot comprise FATCA due to a legal system of that country that has such a branch or subsidiary located, it should be treated as temporarily compliant FFI, not as a limited FFI, by suspending penalties for not performing through obligations under FATCA if registered with the IRS until the legal conflicts are settled by intergovernmental talks, without setting a specific fixed period.

Thirdly, JBA requests the repeal of withholding on partial payments. There is no need to impose withholding tax on past repayments if all countries are becoming FATCA partners. It would be a disincentive if heavy burdens are imposed on the countries or financial institutions that support FATCA to prevent tax evasion.

Considering effects on disrupting this repayment system and the effect on international financial markets, such an avoidance of increasing risks, we request that the obligation of withholding tax on past repayments not be imposed at all on FFIs or FFIs of expanding affiliated groups that operate in an intergovernmental framework.

Fourthly, JBA requests additional transition period for FATCA implementation. We believe that at least one year will be required and intergovernmental talks, such regional agreements, to build a system in several countries. As for financial institutions that operate globally, it is required to build a system making confirmation of status of an overseas branch or subsidiary, since each country has a different status about FATCA implementation.

FATCA will be effective in approximately eight months, and will be practically enforced in 14 months. The JBA does not think it would be efficient if the FFI has to prepare for FATCA implementation under such unstable circumstances. Accordingly, JBA requests that the actual FATCA effective date, which is now July 1, 2013 be postponed further substantially.

Next, we explain about the specific request with respect to each rule of the proposed regulations of FATCA in terms of reducing heavy burdens imposed on FFIs. We request clarification of application of local AML/KYC rules. While FATCA has the custom modification procedures to local AML and KYC rules, separate the detailed rules as set forth. We would request to clarify the identification process by local AML rules, which is called the Act on Prevention of Transfer of Criminal Proceeds in Japan. So, if rules are inconsistent with each other.

If two AML/KYC rules are to be applied in this station, it would impose additional burdens on financial institutions in Japan, as well as lead to confusion on financial markets. Furthermore, financial institutions would also face legal risks if they decline a transaction with a customer through compliance with the provisions under domestic rule, or if they require documentary evidence not otherwise required under domestic law. Therefore, it is not reasonable to provide the same standards across the board, because such AML/KYC rules can't be relied on for FATCA purposes. It is appropriate that the local AML/KYC rules are to be relied on extensively overall. JBA has stated other points to make obligations under FATCA more practically in the comments, such as simplified due

diligence procedures for entities and individual accounts, and relaxing eligibility requirements for deemed compliant FFIs.

What we have stated today are the main points of our request with respect to the proposed regulations. We believe that the purpose of FATCA will be achieved practically through adapting these, our suggestions.

Thank you very much again for giving us the opportunity today. Thank you.

MS. HWA: And next we'll hear from Yutaka Yokota with the Japanese Securities Dealers Association.

MR. YOKOTA: Good morning. My name is Yutaka Yokota. I am very pleased to have the opportunity to speak here today.

I am representing the Japanese Securities Dealers Association, the JSDA, which is a hybrid association functioning as a self-regulatory organization and as a trade association in the Japanese securities market. And comparing these, more than 500 members consisting of securities firms and as a financial institution operating securities businesses in Japan.

JSDA appreciates efforts of the Treasury and the IRS to incorporate the industry's voice into the proposed regulations. Also, JSDA fully understands the importance of international cooperation to prevent and eradicate tax evasion. However, having carefully reviewed the proposed regulations, JSDA has three major concerns that we'd like the Treasury and IRS to consider before they are finalized.

First of all, we think that FATCA inherently has some degree of inconsistency and unreasonableness, and we'd like to have such issues appropriately addressed. Withholding full and partial payment and requirements to calculate and publish pass-through payment percentages apparently are under these issues.

These requirements represent extra territorial application of U.S. domestic law, and we strongly oppose these requirements. In Japanese securities market, fair market value of shares issued by FFIs reaches approximately $350 billion in more than 100 brands, at the end of 2012. If the provisions concerning pass-through payments were to be enforced, a majority of investors would not prefer to hold stocks issued by FFIs, and that would be massive selling pressure of those shares in the securities market, deflecting the market mechanism of each country's securities market which is an essential part of capitalism. It should not be permitted, in light of international harmony, by imposing one country's tax act, namely FATCA. Furthermore, the fact that no requirement is imposed for U.S. persons to document themselves to FFIs, while stringent requirements to identify U.S. accounts are unilaterally imposed on FFIs. It's another inconsistent and unreasonable aspect of FATCA.

Accordingly, FATCA should impose a formative requirement to document themselves to FFIs on U.S. persons with respect to accounts they maintain with FFIs. Second, JSDA strongly suggests that more enhanced, risk-based approaches be taken in implementing FATCA. Given the legislative intent of the tax evasion of wealthy U.S. residents, needless to say the amount of tax to be recovered from U.S. citizens who are living and working in Japan and are subject to taxation in Japan would not be of significance.

On the other hand, U.S. citizens in Japan only account for 0.04 percent of the 127 million population of Japan. We urge the Treasury and the IRS to reevaluate whether the obligation imposed on FFIs to identify U.S. citizens are really consistent with the resulting benefits to the U.S. tax authority. Requirements under FATCA should only be designed to identify account-holders who physically live in the United States and will regret that simplified procedures such as elimination of 13 documentation requirements be considered with respect to the account-holders who are residents in Japan. In addition, JSDA does not think that those account-holders who consent to the disclosure of information to the IRS would include tax evaders. Based on the risk-based approach, we also suggest that FFIs have an option of holding the information of those bona fide account holders. That is, those who consented to the disclosure and be allowed to report such information to the IRS only upon request.

Lastly, JSDA requests that uniqueness of laws and regulations in each jurisdiction should be respected in implementing FATCA. To this end, we ask that more attention be paid to certain unique aspects of Japanese FFIs, including historical backgrounds. Because the proposed regulations provide different documentation requirements for different types of Chapter 4 status of account-holders, FFIs would most likely face practical difficulty in applying such rules.

Documentation requirements should be revised in light of differing AML and KYC rules, among jurisdictions. Moreover, the documentation requirements consigning active NFFEs and substantial U.S. owners who are entity accounts should also be based on local AML rules.

Regarding the uniqueness of Japan, obtaining information on account-holders' nationalities is highly sensitive in Japan. We are concerned that financial institutions in Japan would encounter enormous customer relation problems by asking customers for their nationalities.

Similarly, inquiring to account-holders of certain sensitive matters such as the reason for the renunciation of U.S. citizenship is generally not consistent with social norms and standard industry practice for Japanese FFIs and puts Japanese FFIs in the awkward place of making judgment regarding reasonableness in an area that is considered sensitive personal characteristics. JSDA hereby requests the IRS' understanding on this issue, that the general perception relating to nationalities in Japan differs from the situation in the United States and for Europe.

JSDA has many more additional concerns for FATCA, and they are described in our comment letter handed out last month. We sincerely request your consideration for these concerns. JSDA will fully cooperate with the Treasury and the IRS as needed, and we request continued dialogue to seek mutually acceptable solutions in implementing FATCA.

Thank you for your kind attention. MS. HWA: Next we'll hear from Jonathan Sambur representing Swiss Bankers Association.

MR. SAMBUR: Good morning, my name is Jon Sambur and I'm a partner who practices tax law at Mayer Brown, LLP. I have the pleasure of representing the Swiss Bankers Association, providing their comments on the proposed regulations.

The SBA is the leading professional organization of the Swiss Financial Center. The SBA was founded in 1912 in Basel, and today it functions both as a trade association and self-regulatory body, particularly with respect to anti-money laundering compliance on the part of its members.

The SBA members and the SBA maintain 11 commissions and associated working groups that work on key issues affecting the banking industry, including FATCA. As a trade association, the main purpose of the SBA is to maintain and promote the best possible framework conditions for the Swiss Financial Center, both in Switzerland and abroad, and the SBA and its member institutions have been a longstanding partner of the United States, in particular Treasury and the IRS, with respect to the development of the information reporting rules applicable to non-U.S. financial institutions, including the qualified intermediary program and FATCA.

We hope to continue this collaborative partnership by providing the following comments to the proposed FATCA regulations. The SBA appreciates that FATCA is intended to address the problem of U.S. residents who move funds abroad and then fail to report these holdings to the U.S. tax authorities. The SBA respects the U.S. effort to enforce its tax laws, but respectfully notes that there are more effective and less burdensome means of accomplishing this objective than imposing significant due diligence and reporting obligations on every bank in the world that may hold an account for a U.S. citizen green card holder or person that's substantially present in the United States. As a preliminary matter, the development of any new regulatory regime is likely to create operational challenges. In this regard, beyond its unprecedented extraterritorial reach, FATCA presents several significant challenges due to the breadth and complexity of the proposed regulations. For purposes of our comments today, I will focus on three main areas of concern to the SBA and its members.

Number one, the need to refresh or periodically refresh certain documentary evidence provided by clients at account opening.

Two, the broad definition of FFIs that results in classifying certain closely-held but not operating companies and trust vehicles as FFIs rather than NFFEs.

And three, permitting residents of the EU to be treated as resident in the same country as any FFI organized in the EU for purposes of the local FFI rules, pursuant to or at least due to each EU member's participation in the EU savings tax directive, which provides for certain information reporting among signatories of the directive where the imposition of withholding tax with respect to certain payments.

As part of the due diligence procedures relating to identifying U.S. accounts, the proposed regulations contain a rule that would, for the first time, provide that certain documentary evidence that's used to identify and classify an account-holder for purposes of FATCA would need to be reviewed again either in three years after the initial review or after such documentary evidence expires. Such a rule is inconsistent with Swiss know-your-customer and anti-money laundering rules, AML and KYC rules, which generally provide the framework for the account identification procedures.

We find this rule to be unduly burdensome, as it raises practical operational difficulties and would yield limited, if any, information that would bear on U.S. tax compliance. Generally, under Swiss AML or KYC procedures, unless -- the veracity of the information, the original identifications in question, there is no requirement to again review a client's documentary evidence. To require a subsequent review to ascertain whether a client remains a non-U.S. person every three years or periodically, depending on the expiration date of the documentary evidence, would require a substantial and costly undertaking by an FFI that's exclusively focused on the FFI's documented non-U.S. client population.

It's unclear to us how Treasury and the IRS have determined that upon the expiration of a passport or other documentary evidence and its subsequent renewal, reviewing the renewed document would provide evidence that its holder is a U.S. person beyond what the document provided when first reviewed. For instance, we are unaware of any law that links the expiry date of a passport or other government-issued identification with the expiration of such individual's citizenship in that country. A passport is a travel document, and the fact that it includes an expiration date reflects this primary purpose.

Some countries have concluded that the expiration of a passport is sufficient to bar its use as a travel document. We're also unaware that any non-U.S. passport would provide conclusive evidence of the individual's status as a U.S. person.

Therefore, we expect that implementing such a rule would lead to additional complexity, substantial administrative burdens arising outside the ordinary course of business and local KYC and AML rules, increased personnel cost, additional IT upgrades associated with this ongoing review. It seems somewhat unusual to impose these additional costs to affirmatively ensure that a client that has proven himself to be a non-U.S. person remains as such. Presumably, there are less-burdensome means for Treasury and the IRS to obtain such comfort, such as rules that are already in the proposed regulations relating to changes in the circumstances that would otherwise apply to such clients as part of the FFI's ongoing customer due diligence obligations.

The risk that a client previously documented as a non-U.S. person would become a recalcitrant account-holder in the absence of any U.S. indicia solely because of expired documentary evidence substantially outweighs any benefit derived by Treasury and the IRS under this rule. We respectfully request that this requirement not be included in the final regulations.

An entity that's considered an FFI, even if the entity qualifies as a registered incompliant FFI, will be subject to substantially increased administrative costs -- ongoing monitoring of compliance costs, including costs associated with maintaining the FFI, participating or deemed compliant FFI status. Consequently, it would be appropriate to limit FFI status only to those professional financial market participants like banks, brokers, custodians, investment funds, insurance companies. Other passive investment vehicles that are not professionally managed or widely held should not be treated as if they're financial institutions subjected to these heightened burdens. It's more appropriate to treat these entities as NFFEs and, as needed, obtain information regarding substantial U.S. owners of that entity.

Furthermore, the SBA has serious concerns regarding the practical treatment of owner-documented FFIs. As a general matter, an owner-documented FFI is obligated to annually provide an owner reporting statement. This annual requirement places an onerous burden on participating FFIs that are willing to treat the FFI as owner-documented. The collection of such information is likely to be inconsistent with privacy and data standards in many jurisdictions, and the SBA proposes that in lieu of an annual owner reporting requirement, the entity provides an updated statement when there is a change in the circumstances that are relevant for purposes of FATCA. For example, if a U.S. person acquires an interest in that entity.

Due to the virtual impossibility of allocating ownership with respect to an entity that's considered a complex trust for U.S. federal income tax purposes, we believe that there's no need to provide an allocation of ownership in such cases. An allocation of ownership statement may be appropriate if the owner-documented FFI is a partnership, simple trust, or grantor trust and it's provided in lieu of

the nonwithholding partnership or trust withholding statement that would otherwise be provided by the entity under Chapter 3.

To address the situation where one or more owners of the owner-documented FFI is a specified U.S. person, it is appropriate to treat the entity as if it were a joint account and report all payments as made to each specified U.S. person or subject the entire payment to withholding tax if the required information is not provided.

The SBA is also troubled by the restriction relating to owner-documented FFIs that prohibits the issuance of debt in excess of $50,000 that constitutes a financial account. It's unclear what issuing debt would mean under these circumstances. For instance, would a margin loan constitute issuing debt? A mortgage? We cannot think of any circumstance in which such debt would ever be regularly traded on established securities markets such that it's not considered a financial account.

Because this rule unduly restricts the ability of an entity to borrow funds to purchase assets and fails to have any impact on the identification of U.S. owners or specified U.S. persons who presumably would include the person holding the debt of the entity, we recommend that this limitation not be included.

The local FFI deemed compliant rule is drafted in a manner that limits its application in Switzerland. In particular, the requirement that 98 percent of all accounts must be held by residents of the jurisdiction in which the FFI is organized makes it virtually impossible for a substantial number of Swiss banks whose business model would otherwise fit this purpose and satisfy the requirements for local FFI status.

Moreover, the subsequent provision that treats any resident of the EU as a resident of the EU jurisdiction in which the account is maintained and its rationale for inclusion in the proposed regulation only further highlights this unwarranted limitation.

Switzerland is bordered by five countries, four of which are members of the EU, and all of the countries that border Switzerland are signatories to the savings directive in the EU. Given its size and its long history of providing safe and secure banking services to European clients and residents outside its borders, a substantial portion of Switzerland's banking business relates to this cross-border business with clients residing outside but close to the Swiss border.

We urgently request that an FFI organized in Switzerland or for any of the jurisdictions that have agreed to the EU reporting or withholding regime may treat account-holders that are resident of the EU member states as residents of the jurisdiction which the FFI is incorporated or organized, for purposes of threshold calculation.

Since my time is up, in closing the SBA acknowledges that substantial effort has been made by Treasury and the IRS, including several public forums, to prepare for this comprehensive regulatory framework. Unfortunately, despite this effort indicated by the comment letters and the vast majority of comments in this hearing, the global financial sector's uniform in recognizing that additional work is needed to enable FFIs to implement FATCA in an ordinary manner. In this regard, we hope that careful consideration will be given to drafting of the final regulations, such that the proposed regulation is substantially overhauled in order to appropriately balance the enforcement goals of the IRS with the significant operational burdens imposed on non-U.S. financial institutions and their clients. Thanks for your time today.

MS. HWA: Thank you, Jon. Next we will hear from Tomohiro Yao, representing Life Insurance Association of Japan.

MR. YAO: So, hello, everyone. My name is Tomohiro Yao. I am representing the Life Insurance Association of Japan, the LIAJ, which is a trade organization whose members consist of all life insurance companies operating in Japan. We appreciate this opportunity to provide Treasury and the IRS with our comments on the proposed regulation. We understand that the legislative intent of FATCA and the necessity to prevent tax evasion through the use of offshore accounts, therefore, we are waiting to fulfill our obligation. However, we are concerned that the proposed regulations may impose a substantial administrative burden on Japanese Life Insurance and their customers, which is far beyond what the U.S. government is expecting. Depends on the circumstances. Such burden may prevent Japanese life insurance from complying with FATCA. Today, I'd like to make some comment to resolve the challenging issues Japanese life insurance is facing. We have five major requests outlined in the handout in the last page of my testimony, but due to the time constraints, I'm going to focus on the three major important points.

So, the first point is reliance on existing AMA/KYC rules for FATCA-compliant jurisdictions. As you know, the local AMA/KYC rules have been adopted after careful consideration of the laws, regulations, as well as custom in each jurisdiction. Particularly for life insurance contracts, even in FATCA recommendations and the KYC rules in each jurisdiction, simplifying the procedures are permitted due to the inherent nature of life insurance contracts. Because the use of life insurance contracts for tax evasion would appear to be less likely compared to money laundering, we believe that reliance on existing KYC rules are sufficient to uncover tax evasion and will not prove to be a hindrance in achieving the goal of FATCA. Therefore, we request Treasury and the IRS to further qualify in the final regulation that if differences in procedural details exist between the KYC rules and the FATCA, compliance with local KYC rules would be considered FATCA compliant.

So, the second point is new threshold for account due diligence, which consists of two requests. First, exemption of beneficiaries who receive payment from pre-existing accounts that were once excluded by the $250,000 de minimis threshold, although account due diligence will not be required for pre-existing insurance or annuity contracts with a cash value of $250,000 or less. For those contracts in which the contract holder and the beneficiary differ, account identification procedures are required once the beneficiary becomes the holder of account. In this way, the proposed regulations impose an unduly excessive administrative burden on life insurance, which appears unfair compared to other financial institutions. Therefore, we request that life insurance would not be required to obtain account identification information on life insurance and annuity contracts that had been once exempted from account identification by the threshold. Even if Treasury decides not to grant this request, we believe that the same threshold should apply to the amount of payment made to the beneficiary.

Second, the de minimis threshold should be provided for new individual and entity accounts in the same amount of that of pre-existing accounts. Life insurance and annuity contracts are not defined under the Internal Revenue Code, but has objective FATCA based solely on the authority of Treasury, also at de minimis threshold is provided for pre-existing accounts.

Given the foregoing reasons, together with the fact that asserting that charge is incurred upon the cancellation or termination, life insurance and annuity contracts appear less likely to be used for tax evasion. So, we propose that de minimis threshold be provided for a new life insurance and annuity contract in the same amount as that of pre-existing accounts.

Finally, the third point is a carveout of group insurance and annuity contract provided as part of employee welfare plans. Employee welfare plans deferral is based on the laws, regulations, and the custom in each jurisdiction.

For example, premiums for Japanese group insurance and annuity contracts are paid by the employer and/or checked off from each employee's salary. Such insurance and annuity contracts are governed and as the company's retirement and pension policy and also subject to the regulation and the supervision of the government, this is why we believe that it is nearly impossible for such products to be used for tax evasion.

Nevertheless, the proposed regulation intends to determine whether employee welfare plans are exempted from FATCA based on very technical requirements. We are concerned that these contracts with an inherently low risk of tax evasion may become subject to FATCA. Therefore, this structure may be revised to state in more general terms, for example, insurance and annuity contracts provided for employer welfare plans which are subject to the regulation and the supervision of the government in the foreign jurisdiction are exempted comprehensively or, alternatively, Treasury and the IRS should address this issue by providing these excluded plans in the form of a country industry specific attachment to the FFI agreement or as part of the intergovernmental agreement -- with similar agreement between the U.S. government and each foreign jurisdiction.

That, therefore, is our three most important points. Please note that we have also made other comments in our comment letter as shown in the handout. We respectfully request that Treasury and the IRS take our comments into account in promulgating the final regulations. Thank you for your attention.

MS. HWA: And next, we'll hear from Mr. Keith Lawson with Investment Company Institute and ICI Global.

MR. LAWSON: Thanks. It's still good morning just barely. It'll be good afternoon for quite a long time, I believe. Anyway, I'm Keith Lawson, senior counsel for tax law with the Investment Company Institute here in Washington, and ICI Global, which is our sister organization in London.

I would like to say that both organizations strongly support administrable rules of implementing FATCA. I was involved in discussions with Steve Shay, who at the time was not yet I think even the deputy assistant secretary, at the Treasury, talking about proposed regulation and trying to make sure that there was an understanding of the very difficult issues that the fund industry would have with implementing FATCA both within the U.S. and abroad.

I would like to say as a personal matter I think on behalf of the IRS and ICI Global, as well, that we're very pleased with the progress that's been made so far in working through the regulations, and I think eventually, you will prove Winston Churchill correct -- and I don't mean to offend, but I use this quote when I've spoken several times in Europe several times at conferences where I've been the only American and asked to describe FATCA, where Churchill said "You can always count on the Americans to do the right thing after they've tried everything else." And it's actually served me well. I was able to leave the country five times and we've worked very closely with our counterparts around the world in the fund industry to try to make sure that they understand that there are more than three stages of FATCA, which you don't just go from anger to denial and back to anger, you really have to get to the point where you can actually provide helpful comments to the government, and we've tried very hard to do so.

The U.S. fund industry interest is not just limited to the application of FATCA to U.S. funds and to our shareholders, we're very concerned about how FATCA will apply when it's implemented by other countries, when it's implemented by Italy, and I've had conversations with Enrico Martino with the Industry of Ministry Finance, when it's implemented by -- pick a country, any country. They're all thinking about how with the IGAs and with other type of processes to make these rules work for them, as well, and very worried that they'll be 10 or 15 or 20 different systems that the U.S. firms will have to institute, as well as foreign firms, and we've tried very hard to understand all of the concerns that you have and try to make sure that the rules are administrable both for U.S. funds and for non-U.S. funds. Now, I know there's been a lot of concern about timing and I just had a conversation last week about timing and people whining about timing and providing specific examples, and we've tried in our comments both for ICI and ICI Global to identify some of the specific timing issues. There are a number of very general concerns. There are a lot of unanswered questions, and we have some of these in our comment letter, that you think that you answered pretty clearly in the proposed regulations, and, yet, when sharp lawyers in New York and Boston and Washington and San Francisco and around Europe look at these words, they say well, wait a minute, when I read the definition of a U.S. account, it appears to be limited, for example, to participating FFIs. So, how does that work in the context of a restricted fund? There are those kinds of issues that you all need to sort out that we need to understand before people can build the systems to implement FATCA correctly.

We've also in our comment letter suggested that -- provisional registration rules for foreign funds. If your requirements require you to know about each of your distributors or each of your investors, and, yet, you don't know quite what the rules are for whether or not they'll qualify, it's hard to figure out exactly which approach to take to become FATCA compliant. So, we've looked a lot at those issues, as well.

In terms of timing, and Nicole, I think, is probably -- I'll wake her up -- the expert on this point, cost-based reporting is an example that you all in the international area have been looking more or less to avoid. But it seems pretty simple. Report the purchase price for a security, how hard could this be, right? Well, the proposed regulations there that were finalized had to be delayed for similar reasons, that it's very, very hard to address the systems issues that were discussed earlier. It really will take a lot more time, I think, than people appreciate, and we provided some comments and we will come back with more suggestions. We'll talk to other people to try to identify more timing issues and have proposals for how to deal with them because it's very important that these rules work. Because we're quite convinced that we're going to have to deal with these rules when they're implemented by other countries, as well.

There's one very specific ICI issue that I want to raise, and that goes to the U.S. source rules where 100 percent of a U.S. funds payment is treated as U.S. source regardless of where the fund invests, and you may think, well, that really shouldn't be a big deal, but there are a number of U.S. funds that compete with non-U.S. funds for foreign investors, and the due diligence requirements that we can talk about in the remaining 5 minutes and 10 seconds are very difficult, and a foreign distributor might say if you have, for example, an investor who wants to invest in say Korea or Japan, and they're trying to decide between a U.S. fund that invests in those two countries or say a Luxembourg or an Irish fund or some other fund that invests in those 2 countries which fund to pick, and the question isn't going to be which fund has better performance or which fund has lower fees, if there is any question whatsoever about documentation, the question is going to be which fund will never ever, ever subject me to 30 percent withholding? And that's a very significant competitive issue that we understand the general rule that you want U.S. corporations to have payments treated as U.S.

source because the difficulty of dealing with multinational corporations and where their operations and income come from, but in the case of investment companies, it's really pretty easy to figure out the portion of the income, the portion of the assets attributable to U.S. sources. And, so, that's an issue that's extremely important to us at ICI.

We have a lot of issues that are common in both letters. I hope the language is identical because if it's not, somehow, I missed making a correction to one of the letters.

The customer documentation issue is very important, and people have already talked about the KYC and the AML rules and the difficulty of foreign people trying to understand or distributors trying to understand how to apply U.S.-centric rules. The documentary evidence requirements are very burdensome. People have already talked about those, so, I won't dwell on those either. The treatment of retirement accounts, John and others have talked about the difficulties for Australian superannuation funds. Hong Kong provident, mandatory provident funds have similar concerns.

We understand the need to draw fine lines between the kinds of retirement accounts that are covered and the kinds that are not. I go back to Churchill's quote. I mean, substantial progress has been made so far in getting retirement accounts on the right side of the line, but you're not there yet. We and others have provided suggestions for how to get closer to that and I won't dwell on them now.

ICI global-specific issues, there are several. We really, really appreciate the effort to come up with categories for certain kinds of funds, either exclude U.S. investors or don't have any direct investors, and, therefore, can avoid some of the difficulties to becoming participating FFIs.

One of the concerns, however, is that the requirements, while you made substantial progress, still don't really work very well. I've been talking to colleagues in London with the U.K. Association, and in their discussions with their members, they're really pretty sure that every U.K. investor -- well, putting aside the Intergovernmental Agreement, how that sorts out at the end of the day -- will become a participating FFI because the documentation requirements around investors are so burdensome and the difficulty.

For example, in the context of restricted fund, where you have to go back and make sure your distribution agreements with hundreds of thousands of distributors all have the right language in them are so burdensome, it's probably easier to just become a participating FFI. And, so, we've made a number of suggestions there for ways to make those rules a little bit more manageable to make the effort that you've undertaken to get these guys into a slightly better situation and actually work.

The Intergovernmental Agreements, we appreciate the approach. It'll be helpful though to see some language. I mean, I understand why there's no language in the proposed regulations, but to have some sense of how these rules are going to work when there's an overlap situation.

I mean, for example, if you have a distributor that refund is distributed in 20 or 30 countries and maybe half of them eventually have IGAs but the other half don't, you as the manufacturer aren't going to be able to rely on the IGA because you're going to have investors coming from countries where the distributors aren't subject to all of the requirements that you have in place. And, so, there needs to be a system to make these different approaches for dealing for FATCA work together. It'll be helpful to have some sense of what those rules look like before the regulations are finalized.

Lastly, there are a number of specific fund structuring issues that we and others have raised in the past. Each fund needs to be treated as a separate FFI. We have asked, and this is also in the context of umbrella funds, that you look at the underlying funds and not at the upper tier fund and that there be a centralized option. These issues are all really important for the financial services industry in general and for funds in particular.

And with that, I will stop. I've got 30 seconds left, but I cede to the next speaker. Thank you.

MS. HWA: Thank you. All right, next, we'll hear from Mr. Michael Edwards with World Counsel of Credit Unions, Incorporated.

MR. EDWARDS: Good morning. I am Michael Edwards, the chief counsel and vice president for Advocacy in Government Affairs for the World Counsel of Credit Unions. On behalf of the World Counsel, I'd like to thank you for allowing us to make oral comments today.

The World Counsel is the lead trading association and development organization for the International Credit Union Movement, worldwide there are nearly 53,000 cooperatively-owned, not-for-profit credit unions in 100 countries with more than $1.2 trillion U.S. dollars in savings and over 191 million members. Ninety-five-and-a-half of those are in the United States.

Credit unions all over the world are very concerned about FATCA, and that doesn't even count the credit unions that are basically unaware of FATCA and the developments in U.S. laws that could end up having them be potentially blacklisted as noncompliant or nonparticipating FFIs. Our biggest concern about the proposed regulation on FATCA is that the definition on nonregistering local bank is drafted in a way that we do not think will apply to credit unions.

The reason for that is that the proposed definition of "nonregistering local bank" under proposed Treasury regulation 1.1471-5(f)(2)(i) defines nonparticipating local bank in relation to Section 581 of the Internal Revenue Code as though that bank were chartered in the United States, and that's the key part. In the United States, credit unions are not subject to Section 581 of the Internal Revenue Code, but are instead defined pursuant to Section 501(c)(14)(a) in the case of the state-chartered credit union or 501(c) in the case of a federally-chartered credit union, those that are chartered directly by the federal government.

In this connection, we very strongly ask you to consider expanding the definition of nonregistering local bank to also include credit unions as defined by Section 501(c)(14)(a), determined as if the foreign financial institution were a state-chartered credit union if it was chartered in the United States, and also include similar cooperative credit organizations in that definition.

The reason that we ask you to follow the approach for U.S. states is that there's already a well-established legal regime for determining whether a credit union is a credit union under Section 501(c)(14)(a); that is it defers to the state's definition of a credit union unless the term is grossly misused, such as if the credit union were really a joint stock bank that the state had called a credit union for purposes of attempting to avoid taxation.

Now, that does bring an added wrinkle to this, which is that credit unions are called credit unions in the United States, Canada, Australia, Great Britain, Ireland, and a number of other English-speaking countries, but not always. In Africa, they're often called savings and credit cooperative organizations. In French-speaking countries, they are called a caisse populaire, and that includes Canada and in case of Quebec. There also is occasionally U.S. credit unions that are called a caisse populaire, and there's a First Circuit case from 1977 called La Caisse Populaire Sault Ste Marie vs. United States,

where the United States challenged whether the caisse populaire was a credit union and the First Circuit determined that it was, indeed, a credit union.

Other names are an Islamic finance cooperative that includes credit unions in Afghanistan, which are part of the U.S. Agency for International Development's RUFCOD or Rural Finance and Cooperative Development Program, which is administered by the World Council of Credit Unions. That is one of the key U.S. government efforts to help stabilize Afghanistan.

Other examples are a credit union in Mexico is usually called a caja. In other Spanish-speaking countries, they're usually called a cooperativa de ahorro y credito or sometimes also another type of cooperative, such as cooperativa multiactiva, such as in the case of a military credit union that also sells military uniforms or an agricultural credit union that also engages in agricultural activities, but performs credit finance and payments functions. We could go on, and I'm not sure if I can pronounce this correctly, but in Poland, they're called a spóldzielcza kasa oszczednosciowo-kredytowa, sorry, and similar in Russian. So, it's a very long list.

And, so, to the extent you can give clear guidance that if you're a credit union or a similar organization, which are in what we consider credit unions, but have different names, that you can fall within the nonregistering local bank exemption. Without that, then many credit unions are not going to be able to comply and then risk being blacklisted by internationally active commercial banks who would say well, we can't maintain an account with you. To some degree, there's already concern about this. Credit unions all over the place, essentially in Australia and Canada, credit unions have been told that if they don't comply with FATCA, they will not be able to do payments business with the banks.

And what are called corporate credit unions or central credit unions, which are credit unions at the second level, essentially wholesale institutions that are cooperatively owned, they're also very concerned about this because, typically, they're institutions or their members are required to be a member of their organization. So, they would not be able to close the account. They're required by law to have the account. Sometimes, these are old trade associations and a wholesale institution. Other times, you'll have the wholesale institution run parallel to the trade association, but in either case, you have a lot of the payments business plus other credit functions going through these centrals or in the U.S., they're called corporates. Sometimes and especially in Spanish-speaking countries, they're called federations.

One way that you might be able to help fix the issue with the central bodies is if you were to adjust the expanded affiliated group rules to allow these central bodies to register on behalf of their member organizations. We think that would work especially because credit unions in general have common bond requirements that restrict them so that they can only accept members that are local residents and/or workers and anyone else can't join. Sometimes it's a particular country, but it's not easy for an American to become a member of a foreign credit union. In fact, it's generally impossible unless they were to live locally there.

Now, with the expanded affiliated groups, their field of membership is only other credit unions or mutual organizations that work with credit unions that exist in those countries. But the way that the expanded affiliated group rules are written, they're written for top-down holding company structures or at least that's the way we read them.

So, to the extent that you could have a cooperative organization fall under that, that would help mitigate the issue of the smaller institutions not necessarily knowing they're able to comply and is

especially true if the nonregistering local bank definition is not expanded to hold credit unions within it.

Now, within the definition of local FFI, which the way we read the proposal is that all credit unions would be local FFIs unless the nonregistering local bank definition is adjusted, we support in general the approach with that, although, we think that there are a number of changes that need to be made. For one is that for both the nonregistering local banks and the local FFIs, the proposal proposes to prohibit advertising of dollar denominated accounts on the Web site.

Now, I understand the policy behind that, oh, that would seem like they're trying to solicit foreign business from U.S. people, but in some countries like Ecuador and El Salvador, they use the U.S. dollar as the local currency. There's no local currency. It's a dollarized economy. They use our money because it's low inflation and highly liquid. So, in those countries, they would have to use U.S. dollars on the account or otherwise they can't advertise anything.

In a lot of other countries like Canada, where they have strong trade ties to the U.S., they also offer U.S. dollar-denominated accounts for their members that like to shop or travel to the U.S., and basically every credit union in Canada has that. Also, many other countries, especially in the Caribbean and South America have a lot of dollars in circulation. I'll give you a couple of examples.

In Trinidad and Tobago and Paraguay, for example, if you go there, a lot of people say don't change your money. People would rather have dollars, and, so, it's a world currency. So, we don't think that's workable to prohibit advertising in U.S. dollars, especially in some countries.

Now, on top of that, we think that 95 percent rather than 98 percent would be a better threshold for nonlocal members or customers of the institution. Part of that reason is that especially in Canada, they have certain credit unions that work primarily with an ethnic group like say Croatian people or something like that and then there's a certain degree of immigration to and from Canada, and, so, more than 2 percent of their members may be outside Canada, but not in the U.S.

And in connection with that, we'd also like to support what we think your approach is in terms of saying that if a U.S. citizen or a U.S. person is a local resident, then they don't count towards that 98 or we'd prefer 95 percent limit. We noticed you used the term "resident" rather than domiciliary. So, we think you could have more than one residency, as tends to be the rules. You could be a dual resident. This is important, especially in the case of Canada, where many people may have a second home in Canada and live in the United States, and if they are considered to be local as a resident because they spend -- you have a test in your rules of 31 days in the past year and 181 or more over the prior 3 years, but it's not quite that fine. It can get down to intention, whether people intend to come back.

In any event, not just in Canada, but we've been hearing a lot of concern from credit union members who are U.S. citizens or spend some time in the U.S., and specifically in Switzerland, a woman who is a contact of ours because she's an editor of a credit union publication has renounced her U.S. citizenship in order to continue to bank in Switzerland. Raiffeisen Bank, which is a international cooperative bank and UBS said she could keep her account if she renounced her citizenship and her postal bank basically said the same thing, although, her postman will still not accept deposits directly from her because she's an American or used to be, because she now has her emancipation certificate.

So, this is having far-reaching consequences that I don't think the Congress anticipated, and in any event, if we can find a way or you can find a way to make it easier for credit unions to comply with

this, especially by expanding the nonregistering local bank definition -- and I also neglected to mention earlier we'd support the asset threshold for that, being $1 billion rather than $175 million.

Now, that sounds pretty big. I know that the SBA says a small bank is one under $175 million, but at many of these credit unions, even larger ones, people don't speak English. It's going to be difficult for them to even do the Web form. We're going to try to help them with that to the extent they need to do that to become a local FFI, but to the extent they wouldn't have to register at all, that would be much easier because I'm seriously concerned that they will not all be able to comply regardless of what you do just because they are not aware of U.S. law.

So, thank you very much.

MS. HWA: All right, we will be hearing from Ms. Nicole Tanguy from SIFMA.

MS. TANGUY: Good afternoon and thank you for the opportunity to speak to you today on behalf of SIFMA. SIFMA represents local, regional, national, and multinational securities firms. It represents those that are U.S. owned and foreign owned. And it's fair to say that they are fully engaged in projects to become FATCA compliant today; they're engaged now.

Among the most critical issues that the SIFMA members are facing are the proposed timelines for implementing FATCA and the application of FATCA, the sales of securities settled on a delivery versus payment basis.

I'm going to focus my comments today on these two critical issues, but there are others that we wish to have consideration given to in our written submission. As to the timeline for implementing FATCA, SIFMA urges that the date for identifying pre-existing accounts be uniform for both U.S. FIs and PFFIs, that that date should be January 1, 2014 instead of January 1, 2013 for U.S. FIs and July 1, 2013 for PFFIs that enter into an agreement by that date. Similar adjustments should be made for the reporting and withholding aspects of FATCA. The first year of reporting, we believe, should be, on U.S. accounts by PFFIs should be for calendar year 2014 rather than 2013, and FATCA withholding should start January 1, 2015 for both the FDAP income and gross proceeds. We believe that harmonization is needed to ensure a level playing field between U.S. FIs and PFFIs, especially when they're doing business in the same country.

We also believe the beginning of the year is a better start date than a mid-year date because we want the rules to apply consistently throughout the tax year.

In addressing the policy concerns you may have with this proposal, we'd like to point out the following: The PFFI reporting on U.S. accounts would be a modest delay under SIFMA's recommendation of six months, from September 30 to March 30 of 2014 to March 30 of 2015.

There's a difficulty in tracking changes to account status during the six-month period of 2014 under the present proposed rule. It's really overly difficult to achieve. The industry practices to close the books or freeze the status of accounts at a year end so that, to the extent that account status changes as a result of an expiring Form W8, for example, that's not conflicted with reporting this in the spring of that year. We're also concerned about the accuracy of information that will be reported to the Internal Revenue Service if that reporting is done too early, before systems and procedures are perfected under the new rules.

We recited in our comment letter, and others here today have recited some of the monumental tasks that are facing financial institutions to implement FATCA because it is a radical departure from current procedures, especially if the full documentation, due diligence, and changes in documentation prevail.

And there's a FATCA -- SIFMA has given in part of its comment letter a timeline that outlines exactly the components of a development program. This was assembled by technology people who represented many of the firms that are in SIFMA. And together they came up with what we think is a realistic timetable and explains to you the components so that you will have a better idea of why it is we think it's going to take the time required.

But let us not minimize the effort it's going to take to educate relationship managers who have to explain the new rules to clients for their documentation requirements, explaining to operations people who are actually going to have to perform many of these tasks, and to collect and validate forms under new validation procedures. Global financial institutions face some very large control and scope issues because of the variety of financial services they offer and the fact that they're conducting business globally in many countries.

You must design systems and solutions for each type of business activity, and perhaps you'll have to design one for each location if centralized systems are not feasible. You're also going to have to evaluate and determine the status of thousands of foreign affiliated entities and special purpose vehicles. Finding them all is a challenge for some of us, and create special solutions where there are conflict of law issues that exist in certain countries.

Turning now to the second point on delivery versus payment transactions, to describe -- get everybody on the same page, or try, when there's a sale of securities that is effected on a delivery versus payment basis, simply what is happening is the following: A custodian delivers the securities sold against the simultaneous receipt of cash proceeds from the sale given by the executing broker.

The sale will not settle unless the cash payment is made for the agreed-upon amount at the time the securities are delivered. This is a very quick automated settlement process. Executing brokers will buy or sell securities through an exchange using their exchange membership in an agency transaction or sell from their inventory in a principal transaction. It is important for you to understand that executing brokers do not hold securities in custody for their clients and do not name cash balances in custody accounts.

Since 1984, the responsibility of performing backup withholding and information reporting on gross proceeds from the sale of securities in a delivery versus payment transaction has been vested to the custodian that receives the payment of gross proceeds on behalf of the seller. The executing broker has not been required to collect U.S. tax forms or perform withholding on such transactions. This rule has operated effectively to identify the responsible broker when there are at least two brokers involved in a single sale and avoid double reporting or withholding.

In contrast, the backup proposed regulations appoint each broker involved in a DVP transaction as a withholding agent, would require each broker to determine its withholding obligation based on the fact and status of its payee. Under the general proposed rule, we understand that the person to whom a payment is made would be considered the payee regardless of whether that person is a beneficial owner or not.

Our primary concern is that trades will fail to settle and that that will cause a substantial market disruption. If an executing broker pays only 70 percent of the agreed upon price, the custodian bank will not deliver the securities on the scheduled settlement date.

There is a cascading effect of this failure because there are interdependent transactions in the marketplace at all times. If the executing broker does not settle the sale transaction, the purchaser will not be able to settle a short sale or to prevent a delivery of securities on another transaction, or perhaps they will not be able to return borrowed securities.

SIFMA's recommendation to solve this problem is to modify the proposed regulations, make them consistent with the Chapter 61 rules so that withholding and reporting is performed only by a U.S. FI or a PFFI that receives gross proceeds from an executing broker in a DVP sale. If necessary to avoid abuse, you could limit this rule to transactions that are cleared through one of the major clearing organizations, that are U.S. FIs or PFFIs, and thus, it will limit the application of a post-rule to noncleared transactions where the executing broker would then need to document its receiving broker. Thank you for your consideration.

MS. HWA: Thank you, Nicole. And next we have Mr. Andrew Barkin representing the Institute of International Bankers.

MR. BARKIN: Good afternoon, everyone. I would say using a baseball analogy at this point, we are rounding second, we're moving on to third. Okay. My name is Andrew Barkin, I'm a Managing Director and head of U.S. Tax at Bank of Tokyo Mitsubishi UFJ. I appreciate the opportunity to appear here on behalf of the Institute of International Bankers, which together with the European Banking Federation, submitted extensive and detailed comments on the proposed regulations.

We commend Treasury and the IRS for issuing a thoughtful and detailed set of proposed regulations that address many of the concerns that we and other interested parties have previously raised. We continue, however, to have serious concerns regarding the operational and systemic burdens that these rules, if adopted in their current format, would place on financial institutions.

Today I would like to address broadly how Treasury and IRS might better achieve their stated goals bouncing between the compliance objects of FATCA and minimizing the burdens on stakeholders.

Essentially we have four recommendations for achieving this goal.

First, the FATCA requirements should be more closely harmonized with AML/KYC rules and existing practices at financial institutions.

Second, the FATCA regulations should expand their reliance on technology, centralized functions, and the manner in which businesses organize themselves.

Third, the entity classification rules, including in particular the scope of category three investment entity FFIs and NFFEs, but also the types of deemed compliant FFIs, should be reformulated and simplified.

Fourth, overall, the rules need to be streamlined and simplified significantly so they can be applied by back office personnel around the world, many of whom do not speak English and are not intimately familiar with U.S. tax reporting laws and regulations.

I will now expand on these recommendations. While the proposed regulations rely on AML/KYC rules and the existing practices of financial institutions in a number of areas, they almost always layer on additional requirements, some of which are quite burdensome for both financial institutions and their customers, so that instead of achieving synergies, the end result is really a planting of AML/KYC rules and existing practices.

For example, under the proposal, a financial institution will be required to periodically re-solicit customer identification such as a passport or drivers license from every one of its post-FATCA new accounts, even though the likelihood of a change in the account holder's Chapter 4 status of which the financial institution would not otherwise be aware is minimal.

Under the proposal, a financial institution would also need to secure U.S. tax-centric certifications under penalties of perjury from virtually every new entity account and every existing FFI account even though in many, if not most cases, there are less burdensome alternatives for determining the Chapter 4 status of the account.

These are just two of the more troubling examples where the proposal does not adhere to current AML/KYC practices. A part of the enormous costs involved in fulfilling these labor intensive requirements, we cannot overemphasize how disruptive it is to customer relations generally to continuously seek customer identification documentation.

Moreover, it is commercially impractical for a French or a Japanese bank, for example, to solicit and periodically re-solicit U.S. tax-centric certifications and documentation from their local individual entity account holders.

Imagine the reaction if the bank branch around the corner were required to solicit similar certifications under penalties of perjury from D.C. resident customers regarding French, Japanese, Russian, and a litany of other foreign requirements.

In addition to more closely harmonizing the FATCA requirements with AML/KYC rules and existing practices at financial institutions, there are significant systemic cost savings, efficiencies, and more accurate compliance results that can be achieved by expanding the reliance on technology, centralized functions, and the manner in which businesses organize themselves. There are several illustrations of this important point.

First, on the technology front, the IRS should require each FFI to provide it with an ISIN or BIC identification code and should electronically disseminate a list of participating FFIs with their identifying code, as well as an FFI EIN. Withholding agents that make positive identification of a counterparty based on this information should be relieved of having to obtain a W8 from that FFI counterparty. Also, the rules should permit the use of dematerialized withholding certificates through web based applications.

Second, the rules should permit broader reliance on centralized due diligence and documentation review functions. Financial institutions generally centralize their due diligence and documentation review functions as it makes no sense to require each legal entity within an expanded affiliated group or under common control such as in a family of PE or hedge funds to separately perform these responsibilities.

In addition, building on current KYC practices, financial institutions should be able to rely on certifications provided by a U.S. FI, PFFI, or an agent regarding the FATCA status of identifying account holders.

Third, consistent with business organization and regulatory compliance framework of the financial industry, FFI agreements should allow FFIs to elect to organize their compliance in reporting along business and geographic lines instead of only on an entity basis. The proposed entity classification rules are very problematic. First, the proposed rules do not provide a practical and workable approach with hundreds of thousands of noncommercial investment entities around the world such as family trust or investment vehicles or even an SPV to comply with FATCA.

It is highly unlikely that these entities, the vast majority of which have no U.S. connection, will opt to become PFFIs or owner documented FFIs. We urge Treasury and the IRS to use the certification mechanism provided for in Section 1472 for these noncommercial investment vehicles.

The entity classification rules are less problematic with respect to the definition of active NFFEs. This can and should be a relatively straightforward determination based on the withholding agent's AML/KYC information and existing commercial practices.

They should not require the NFFE and every holding agent to annually perform a PFIC like asset value use test. A third major concern with these classifications is that they provide no relief for holding companies and certain members of banking and other active financial groups which collectively issue many billions of dollars, they should not require the NFFE and every holding agent to annually perform a PFIC-like asset value use test. A third major concern with these classifications is that they provide no relief for holding companies, and certain members of banking and other active financial groups which collectively issue many billions of dollars and medium term notes and other debt that should be exempted from FATCA to the same extent as similar debt is issued by a bank hasn't been exempted.

Finally, while we appreciate the fact that the proposed regulations provide exceptions for various types of deemed compliant FFIs, the reality is that most of these exceptions contain conditions that will make them unavailable for large numbers of entities that ought to be covered.

In addition, other categories of low risk entities and accounts such as retirement and escrow accounts should be included within the deemed compliant FFI classification. I want to take a moment to highlight a troublesome issue facing U.S. branches of foreign banks and their U.S. counterparts.

Because the proposed regulations do not incorporate the Chapter 3 presumption that every payment to a U.S. branch of a foreign bank is effectively connected income or ECI, it appears that a U.S. branch of a foreign bank will need to provide each withholding agent with a withholding certificate or other documentation with respect to each payment made to that branch. The proposed regulations also do not permit reliance on the eyeball test for purposes of Chapter 4. These departures from existing reporting and withholding framework will require U.S. branches and U.S. FIs to build very expensive systems to track, solicit, and accept Forms W8 ECI for each of tens of millions of transactions each year and will place U.S. branches at a competitive disadvantage to U.S. FIs who may decide to avoid such expensive system build by choosing to transact with U.S. branches of foreign banks.

Finally, I have two overarching comments. First, as one reads through the detailed and precisely crafted descriptions of the proposed regulations, one cannot help but wonder how these rules can possibly be digested and applied by the back office staff's financial institutions around the world, many of whom who do not speak English.

If FATCA is going to be successfully implemented, the regulations need to be dramatically simplified and streamlined. While we understand that many exceptions and detailed requirements are designed to capture every possible U.S. account holder, such complexity must be the exception, not the rule, otherwise, the goals of FATCA cannot be achieved regardless of the good intentions of the foreign financial institutions.

Finally, we urge Treasury and the IRS to take a practical approach to effective dates. We and others have previously advised that financial institutions will require 18 to 24 months to implement FATCA once a complete package of final regulations, FFI agreements, and new IRS reporting forms are released. Given the current timeframe for finalizing this guidance, not to mention the intergovernmental agreements with FATCA partners, it will simply not be possible for financial institutions to implement new account documentation processes by 2013.

It is also not feasible for financial institutions to renegotiate thousands of instant master agreements before 2013 in order to address potential withholding on collateral security arrangements and pass through payments that are made in 2017 or later in respective derivative contracts entered into after 2012.

Our written comments explain the implementation issues and contain recommendations regarding both the general effective date and the instant master agreement issues. In conclusion, the Institute of International Bankers appreciates the opportunity to appear here today, and the IEB stands willing and ready to continue to assist Treasury and the IRS in its efforts to implement FATCA in a manner that achieves its compliance objectives while minimizing burdens on stakeholders. Thank you.

MS. HWA: And next we'll all hear from Mr. Darren Hannah representing the Canadian Bankers Association.

MR. HANNAH: Good afternoon. My name is Darren Hannah and I'm the director of banking operations with Canadian Bankers Association. The CBA represents the banking industry in Canada. Our main role is to advocate for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. Our submission on the regulations was prepared jointly with the other major financial sector associations in Canada. My intention is not to cover all of the aspects of that submission, but rather to touch on some key recommendations and to offer some thoughts on the intergovernmental agreement process that the United States Government has undertaken with several countries. At the outset, I want to provide you with a brief overview of the banking system in Canada and the Canada/U.S. relationship since it'll give you some context for our discussion.

Canada has a strong national banking system regulated by the government of Canada. Canada is a strong economic partner with the United States. In launching the 2011 Beyond the Border Initiative, President Obama and Prime Minister Harper described the relationship as follows: "Over $250 billion of direct investment by each country in the other and bilateral trade of more than half a trillion dollars a year in goods and services create and sustain millions of jobs in both countries."

At the Canada/U.S. border, nearly $1 million in goods and services crosses every minute, as well as 300,000 people every day who cross for business, pleasure, or to maintain family ties.

The U.S. Congressional Research Service reports that Canada is the largest source of foreign direct investment in the U.S. banking and financial sectors. And most importantly, Canada is not a tax

haven and is a low risk of harboring U.S. tax evaders. Canada has a higher personal income tax rate than the U.S. and has an automatic nonresident tax information sharing arrangement with the U.S. that is unique. This combination makes it highly unlikely that a U.S. tax evader would ever choose Canada as his destination of choice.

We believe the U.S. should -- officials should take that into account when drafting regulations for FATCA in developing foreign financial institution agreements. There is discretion in the regulations to adjust for risk, and we continue to encourage Treasury and the IRS to use it. So that's the backdrop for the comments I want to make today.

I think it's well understood that FATCA is – FATCA compliance is challenging financial institutions. To date, by our count, there have been about 350 different submissions from 30 countries representing all parts of the financial sector that have been made on FATCA notices and regulations. All of them have outlined the number of technical, operational, and legal issues that they need to contend with to implement FATCA.

The complexity stems from the fact that FATCA affects the interaction between the financial institution and its client.

It sets out rules about how to classify accounts. It sets out rules about the information that has to be collected and recorded on accounts, the information that has to be reported to the IRS, withholding on income where a client is deemed to be recalcitrant, or indeed, closing accounts and terminating relationships. All of these issues are also governed by a body of domestic practice, legislation, and contractual obligations, and therein lies the heart of the complexity: How do you satisfy Canada's strong comprehensive and internationally allotted domestic regulatory environment while facing U.S.-based requirements under FATCA, all while working hard to keep customers happy?

And that's not an easy balance.

We think that more needs to be done to reduce the complexity of FATCA and to make it more workable for financial institutions. It is on that that our recommendations are based. Clearly, there's not enough time to go through all of the recommendations, but I do want to highlight a few of them that we think deserve some special merit and attention.

First and foremost, we're concerned about the documentation and document retention requirements. The requirement to renew documentation upon expiration is a recipe for creating recalcitrant account holders. Documentary renewal isn't required in Canada and many customers will have little incentive to come into a branch to renew their documentation. We believe that re-documentation should only be -- is only appropriate where there's a change in circumstances that suggest an account holder has become a U.S. person.

As well, the requirement to photocopy documentation is problematic from an operational and a legal perspective. As it stands, if banks needed to renew all expired documentation and keep photocopies of every document, they would need to regularly re-document the vast majority of their client base and do so in a manner that raises some serious legal and operational issues. This simply isn't feasible.

More broadly, and touching on a theme a number of people have touched on today, we recommend that regulations allow FIs to rely on their domestic anti-money laundering and KYC practices, especially where you're coming from a country that's a FATF member.

The complexity of the entity account system is problematic. The regulations propose somewhere in the neighborhood of 40 different entity classifications. As a practical matter, we think that's simply too many for frontline staff to contend with. We think the system needs to be greatly simplified. In the area of expanded affiliated groups, we appreciate the addition of the limited branch and limited affiliate categories, but we are skeptical, though, that the legal issues that give rise to these situations are going to be resolved by 2015. We, therefore, recommend that the groups be allowed to hold limited affiliates and limited branches indefinitely. The restrictions placed around these entities are substantial, so at that point we don't view them as a significant risk of tax evasion. In the area of deemed-compliant financial institutions, the regulations propose a number of categories, and we propose some amendments we think make them work better. For example, with respect to the local bank and the local FFI categories, we think they're good ideas, but we think some improvements need to be made, like lifting the restriction on the marketing of a U.S. dollar account. That's a product that's incredibly common in Canada given the proximity and the relationship, and raising the asset size limit.

More generally, we believe there should be a provision allowing financial institutions to apply for deemed-compliant status if they feel they're within the spirit of the deemed compliant categories but can't meet the strict terms of the regulations. They should be given an opportunity to make their case.

Finally, we need more time, again, a theme you've heard today. Financial institutions cannot be expected to start building systems until the regulations and the FFI agreements are finalized. It's, therefore, unreasonable to expect that a financial institution will be in a position to comply when entering into FFI agreements in mid-2013. Therefore, we're recommending that FFIs get an 18-month implementation window from the time they enter into their agreement.

Finally, I want to highlight the proposed intergovernmental agreement process that the U.S. has entered into with several European countries and, we hope, with several others.

As we stated in our comment letter, the CBA is a strong supporter of that process and we want to see similar agreements for other countries, including Canada. The CBA and many commentators have said repeatedly that FATCA at its heart is an information sharing arrangement, and, therefore, is best addressed on a state to state basis, building on the tax information sharing mechanisms that are already in place.

In closing, I just want to reiterate that Canada is a low-risk tax jurisdiction. We are a trusted neighbor with a long history of working closely with the United States on regulatory issues, and we trust that you will take that into consideration as you consider our comments and implement FATCA. And that concludes my remarks. Thank you for your time.

MS. HWA: All right. Next we will hear from Peter van Dijk representing the TD Bank Group.

MR. VAN DIJK: So, my name is Peter van Dijk, and I'm the head of tax at TD Bank Group, a worldwide financial services group headquartered in Toronto, Canada. In the United States, TD Bank, America's most convenient bank, is one of the ten largest banks with more than 25,000 employees and 7.5 million customers.

TD bank has approximately 21.5 million customers worldwide. Our business includes both Canadian and U.S. personal and commercial banking, wealth and insurance, and wholesale banking. TD fully supports FATCA's goal of minimizing U.S. tax evasion. We commend the Treasury Department and the IRS for their efforts to achieve, as stated in the preamble to the proposed

regulations, an appropriate balance between fulfilling the important policy objectives of Chapter 4 and minimizing the burdens imposed on the stakeholders.

We also believe that the announced intergovernmental approach to FATCA implementation is a promising step to minimize administrative and compliance burdens and address conflicts between FATCA and local laws.

That being said, we have some serious concerns about the proposed regulations, which would require us to make significant and expensive changes to existing systems and processes to identify and report the small number of our account holders who are U.S. persons, the vast majority of whom do not owe any U.S. tax.

The proposed regulations also would put us in an untenable position of complying with FATCA or complying with Canadian privacy and access to banking legislation.

My testimony today covers three main points: risk, documentation, and timing. And my counsel has asked -- Phil West, he has asked me to repeat this: risk, documentation, and timing.

So, first, the risk based approach to FATCA implementation should be adopted. This should include special rules for low-risk, locally focused retail banking. We've heard that before today. Second, the documentation and due diligence required by proposed regulations should be better aligned with AML and KYC requirements. Failure to do so, among other things, makes FATCA implementation disproportionately expensive and unfairly favor U.S. banks over FFIs in the important and growing online banking area.

Third, the time for FATCA implementation, and we've heard this before too, should be extended. FFIs should be given 24 months, not 18 - 24 months to implement FATCA after the letter of the release of the final regulations or the conclusion of the relevant intergovernmental agreements. Returning to the first point, Treasury and the IRS should take a risk-based approach to FATCA implementation. We believe that the statute's regularity authority should be used to interpret the statute so that the costs and benefits of FATCA compliance are balanced to a far greater degree. One logical way to improve the balance would be to adopt a risk-based system with appropriate special rules for low-risk businesses.

For example, Canadian retail banking is a particularly low-risk category. Ninety-eight percent of Canadian retail bank account holders are Canadian residents. These account holders typically are subject to tax in Canada at rates comparable to or, most likely, higher than those in the United States. The number of U.S. persons holding Canadian bank accounts is small. The number of U.S. persons with residual U.S. tax liability is likely even smaller. And the number of those who are not reporting are likely de minimis.

Thus, the cost for Canadian financial institutions to create new systems and processes to find what will ultimately amount to few Americans is far disproportionate to the potential benefit to the U.S. Treasury.

A risk-based approach could be implemented through agreements between the United States and other governments along the lines described in the joint statement on FATCA implementation. In fact, the joint statement recognizes the willingness of the United States to identify in intergovernmental agreements, specifically categories of FFIs that would be treated as deemed compliant or representing a low risk of tax evasion. We urge the Treasury and the IRS to include locally focused retail banks in this group irrespective of the size of their balance sheets.

My second topic is documentation and due diligence requirements of the proposed regulations. They are inconsistent with existing -- and we've heard this many times before, but it's an important point -- they are inconsistent with existing AML/KYC requirements and market practices. They require significant operational changes, they conflict with foreign law, and they unfairly benefit U.S. banks. I will highlight several examples and our specific recommendations.

There continue to be inconsistencies between documentary evidence applicable under FATCA and identification acceptable for account opening in Canada. Certain documents, such as a social insurance number or SIN card, are widely used for identification and are acceptable under AML/KYC but not appear to qualify as documentary evidence under the proposed regulations because they lack an address or are not specifically mentioned in a jurisdiction's attachment to the qualified intermediary agreements.

We suggest that the regulations be amended to expand the category of documentary evidence to include documents typically used for identification in a jurisdiction with approved AML/KYC rules including, but not limited to, those referenced in the jurisdiction's qualified intermediary attachment.

Further, the documentation requirements in the proposed regulations unfairly favor American institutions over FFIs with regard to their ability to compete in the fast-growing online banking space. As a matter of fact, the documentation requirements, as proposed, would completely, in my view, eliminate the convenience of opening a bank account online.

Online banking generally relies on third-party identification services to verify identities of prospective account holders. The proposed regulations should be amended to permit the use of these services to document accounts.

Another example of how FATCA should be aligned with existing AML/KYC standards relates to the renewal of documentary evidence. We recommend that documentary evidence need not be renewed until a change in circumstances or when the documentation is required to be updated under AML/KYC standards. Requiring otherwise would force FFIs to incur significant cost with likely very little benefit to the U.S. Treasury.

Another troubling example is the requirement that FFIs maintain the original, a certified copy, or photocopy of documentation. This too is inconsistent with existing AML and KYC rules as well as Canadian privacy laws. And, again, this is a point that has been made a couple times before.

In addition, we've estimated that the documentary evidence renewal requirement and photocopying requirement together would cost our retail bank alone $6 million in initial implementation and $6 million annually to maintain.

We recommend that FFIs be permitted to record, in their account opening files, the relevant information from the documentary evidence.

The last example I will mention is the entity account documentation requirements. FFIs must identify entity accounts as one of the 30 or more FATCA entity types and obtain documentation beyond that's required by AML and KYC. As explained in our April 30th letter, we believe that the entity accounts documentation requirements can and should be made considerably less burdensome.

We're hopeful that these and other inconsistencies between the FATCA documentation and due diligence requirements and AML/KYC and market practices can be reconciled in the final regulations and/or future intergovernmental agreements.

Finally, more time is needed for FATCA implementation. Retail banks typically require 18 months to make changes to account opening systems and processes. Given their complexity, the FATCA rules will require even longer to implement. Further, we cannot even begin implementation in earnest until the regulations, intergovernmental agreements, and relevant forms are finalized.

As a result, we recommend that the FFIs are given at least 24 months to implement a new regime from the letter of the date of the final regulations and the date of the relevant intergovernmental agreement.

I hope you will favorably consider the points that I've discussed today about risk, documentation, timing -- again, at the request of Phil, he thought that this would be particularly effective -- as well as other recommendations described in TD's April 30th submission.

We look forward to a continued dialogue and I thank you very much for your time.

MS. HWA: Thank you. Moving on we will be hearing from Mr. Harris Horowitz representing BlackRock.

MR. HOROWITZ: Thank you. Good afternoon. I am Harris Horowitz, managing director and global head of tax at BlackRock.

BlackRock is one of the world's leading asset management firms managing over $3.5 trillion on behalf of institutional and individual clients. We support the goal of evasion of U.S. taxes -- stopping the evasion of U.S. taxes –

(Laughter) Sorry. We also commend the considerable efforts of the Treasury as reflected in these proposed regulations.

In my testimony I will focus on three things: risk and concerns that investors have with respect to U.S. mutual funds, nine U.S. publicly traded funds, and foreign retirement plans. In addition, we support the comment letters already submitted by the ICI and EFAMA.

Many American asset managers, like BlackRock, have offices globally and distribute a wide variety of products. U.S. asset management services are therefore exported overseas and this has greatly benefitted the American economy. As asset managers, we are concerned that the Treasury has not adequately addressed FATCA's impact on investors and capital markets, nor the relative risks, a word you've heard before, which FATCA, at its core, is designed and intended to mitigate. We are concerned about FATCA on several fronts.

First, as to foreign mutual funds, especially those that are distributed through financial intermediaries, we foresee considerable issues with having every financial intermediary in the chain of ownership becoming FATCA compliant.

Second, as to institutional investors such as foreign retirement plans, the proposed regulations do not resolve the FATCA issues in a considerate and evenhanded fashion.

Third, U.S. mutual funds, including exchange traded funds simply elect out in the proposed regulations. While foreign publicly traded funds are ostensibly addressed in the proposed regulations, frankly the one-size-fits-all approach doesn't work in practice.

Fourth, the recent financial crisis demonstrated the global economy's need for more reliable capital markets. The proposed regulations encourage a step backward from U.S. capital markets and products by introducing unnecessary impediments.

So, I'm here to emphasize how FATCA and the proposed regulations will have a very negative effect on U.S. competitiveness, U.S. jobs, and U.S. capital markets.

In order to understand the adverse effects upon U.S. mutual funds, let me share an example. For instance, U.S. asset managers have created many innovative investment products. BlackRock's iShares is just one example of a successful innovation.

ETFs combine the favorable tax treatment provided for regulated investment companies, or RICs, with the ability for investors to gain exposure to specific investments while being traded throughout the day.

So, let's compare two ETFs which invest in the same non-U.S. stocks, one ETF is a U.S. registered RIC, the other is a non-U.S. organized ETF. The RIC is managed by a U.S. advisor and the other ETF by a non-U.S. manager. Here's the problem: A Hong Kong woman wants to purchase an ETF which invests exclusively in an index comprised of Chinese companies. The investor has a choice, she can purchase through her Hong Kong broker, the RIC, which is listed on the U.S. and the Hong Kong stock exchange, or the Hong Kong organized ETF, which is simply listed on the Hong Kong exchange.

Both ETFs have similar performance and tracking results. Absent FATCA, for a host of reasons, the Hong Kong investor would prefer to invest in the RIC. However, by investing in the RIC FATCA will require the Hong Kong investor to provide U.S. tax documentation, which is very unfamiliar to her Hong Kong broker.

Faced with FATCA and the risk of loss (inaudible) amounts, if any party in the chain of ownership is not FATCA compliant, the Hong Kong broker counsels the Hong Kong investor to simply purchase the Hong Kong organized ETF.

Why does Treasury's guidance drive business outside the U.S.? Because Notice 2011-34 simply provides that for a U.S. corporation, such as a RIC, the passthrough payment percentage will be 100 percent while that of the non-U.S. ETF will be 0 percent, despite, in this example, both funds investing in the same Chinese companies.

Further, although the proposed regulations defer FATCA's gross proceeds 30 percent withholding until 2017, this extension only applies to foreign financial institutions such as the Hong Kong ETF, but not the RIC. Therefore the RIC's foreign investors could suffer such withholding two years earlier starting in 2015.

Expanding upon this example, other current Hong Kong investors in the RIC are already subject to Chapter 3 withholding on the RIC's dividends. Therefore, the Treasury is already collecting tax revenue. Absent Treasury's provision of equitable relief, Hong Kong investors may now exit this RIC at the cost of current tax revenue and the erosion of U.S. competitiveness and U.S. capital markets. This is just one example where Treasury's guidance penalizes U.S. funds and undermines the competitiveness of U.S. asset managers.

In order to address what we view as an unintended consequence of Treasury's guidance, we recommend that RICs be permitted to elect to compute and publish their pass through payment percentage in the same manner as non-U.S. funds.

In addition, FATCA's 30 percent gross proceeds withholding should not be imposed any earlier than the effective date applicable to non-U.S. funds.

Another area of concern is the challenge facing publicly traded funds. Publicly traded funds can be both ETFs or they can be non-U.S. closed-end funds like UK investment trusts. We believe the proposed regulations will work well for publicly traded funds (PTFs) that route transactions entirely through securities clearing houses.

Unfortunately, not all jurisdictions utilize the securities clearing house in such an all-encompassing fashion. For example, local law and practices in some jurisdictions such as the UK permits investors to register on the share registry of the PTF. Even so, all the PTF shares are bought and sold by investors through brokers who have already to know their customers under the Anti-Money Laundering Rules as well as the upcoming FATCA compliance rules.

However, PTF share registry is typically maintained by an agent who does not naturally serve as a financial intermediary. Thus, not all PTFs fit within the proposed regulations paradigm.

For instance, the proposed regulations requirement that funds reject those investors unwilling to provide documentation upon purchase cannot practically be applied. That is, those PTFs only become aware of such direct investors after the trade has already occurred on the exchange.

Nonetheless, both the statute and the proposed regulations provide that publicly traded companies, presumably including PTFs, are not financial accounts and, further, do not require FATCA withholding upon recalcitrant accounts. So, we are perplexed as to whether PTFs are or are not obligated to conform in full to FATCA's requirements including documentation and building and instituting withholding obligations.

Essentially, from a FATCA risk-analysis perspective, only those dividends paid by PTFs to shareholders listed on a stock register of concern. As indicated by market practice, PTFs cannot readily conform with the proposed regulations. For instance, in regards to declining and redeeming shareholders, this leaves PTFs in an unsettling and threatening quandary. We do not see PTFs as creating a high-risk of tax evasion, thus we believe the clearest and simplest way to address these issues is to remove altogether the requirement on PTFs to withhold on passthrough payments that represent U.S. fixed, determinable, and periodic income.

Since shares in PTFs, like other publicly traded companies, can only be bought and sold through brokers, other FATCA rules will ensure that FATCA information, reporting and withholding, will occur.

Whether proposed regulations acknowledge their foreign retirement plans pose a low risk of U.S. tax evasion, they remain overly complex and assume all foreign retirement plans conform to U.S. standards, which is very U.S.-centric. If a foreign retirement plan has to comply with all of FATCA's provisions, it will be a heavy burden and serve to lessen retirement payments.

It might also place plan trustees in an uncomfortable position of complying with FATCA's rule to redeem and withhold upon retirees if they represent recalcitrant accounts while confronting local law restrictions where taking such an action is illegal.

Subjecting these plans to FATCA will only encourage foreign pension plans, representing billions of dollars of assets, to avoid investing in U.S. assets to the detriment of U.S. capital markets. In summary, we strongly recommend that Treasury adopt a risk-based approach that focuses on the greatest potential for abuse while avoiding negative impacts on U.S. companies and the competitiveness of U.S. capital markets. We appreciate the opportunity to discuss our concerns and look forward to working with Treasury in the future.

MS. HWA: And next we will have Ms. Ella Grundel and Sara Olsson representing Swedbank.

MS. GRUNDEL: Good afternoon. My name is Ella Grundel. I'm representing Swedbank. MS. OLSSON: And my name is Sara Olsson representing Swedbank Robur, which is the asset manager subdivision of Swedbank.

MS. GRUNDEL: Swedbank is a full service bank with operations in Sweden, Estonia, Latvia, Lithuania, Norway, Denmark, Finland, Luxembourg, the U.S., China, Russia, and Ukraine, in total, 12 jurisdictions.

Swedbank has its roots in the Swedish savings banks tradition, which dates back to the 1820 -- year of 1820. Swedbank has 9.5 million retail customers and some half a million corporate customers and serves our customers through more than 500 branches.

Swedbank supports the combat of cross-border tax evasion. It is important for FATCA to be successful and that the rules are workable globally and that the rules are practical and can be implemented. Right now the rules are not workable.

The most important problem is conflicts with local laws, not saying that other problems are not equally or even more burdensome. The document requirements are too burdensome and complicated. The efforts and costs for being compliant with the FATCA rules are out of proportion in relation to the expected outcome.

The FATCA penalty tax, under current proposal, affects our non-U.S. clients that have nothing to do with U.S. investments.

A participating foreign financial institution cannot and shall not be forced to violate local law in order to comply with FATCA. Swedbank has conducted a group wide analysis regarding the impact of FATCA. We have identified major conflicts with local law in all jurisdictions where we operate. I will count six of them here for you.

One is registration, processing and disclosure of personal data requires client consent. Consent has to be given voluntarily. We need consent even to look for the data in our systems. Account opening refusal is number two,

number three, closure of accounts.

Both number two and number three have major conflicts and are legally not possible. Freezing of accounts should legally be performed by authorities. Withholding of tax, the 30 percent tax, from recalcitrant account holders and nonparticipating foreign financial institutions cannot lawfully be performed.

We have found special problems for mutual funds, for the Swedish mutual investment funds that are an important part of Swedish investments. Investing in financial assets in Sweden is usually made by investment in mutual funds.

MS. OLSSON: And Swedbank covers the largest fund company in Sweden and a significant part of the assets in our funds are U.S. securities and the Swedish mutual funds do not normally qualify under the different exclusions for relief for FATCA compliance.

But FATCA requires all investment funds that are, according to Swedish law, not legal entities and not capable of acquiring rights and obligations, to, on the investor's behalf, enter into FFI agreements with the United States.

MS. GRUNDEL: There are tremendous risks for an investment fund with assets in U.S. securities to be classified as non-FATCA complaint. This would lead to 30 percent FATCA tax on the withholdable payments to the investment fund. Withholding is not workable for Swedish investment funds. When a tax should be withheld under FATCA due to a unit holder or nonparticipating unit holder's action, a recalcitrant account holder, the fund company would be forced to withhold the tax from the assets owned by the collective unit holders and not from the individual taxpayers. This would clearly be contrary to Swedish law for investment funds and it's most likely a criminal offense under Swedish law.

The withholding tax discriminate the fund's capability to remain competitive and affect the investors in the fund in a very negative way.

This problem is a problem which, if unsolved, would mean that Swedish mutual funds cannot invest in U.S. securities and are forced to divest.

The complexity of the regulations result in major obstacles to be compliant. The documentation requirements are too extensive and complicated. Documentation, on-boarding, remediation, and reporting requirements are not workable. FFIs and other U.S. withholding agents must process the different entity categories, and they are many, and the requirements differ for payers as well as for new and old accounts. These need to be incorporated into operational procedures and systems understandable not only to tax and legal but also to all operational personnel involved.

The fact that essential parts of the rules are not yet disclosed, the QI reporting rules with respect to U.S. accounts, withholding on pass through payments are reserved, it is not advisable entering into FFI agreements without knowing what the final withholding requirements will be.

The regulations need to be simplified to avoid misunderstandings and unnecessary cost for compliance. I have a couple of examples, complications where we need clarifications. The definition of financial accounts is unclear and we have tested that on our lawyers, that they read the text of the regs and no one understands it. (Laughter)

The definition of a U.S. person makes things very complicated to create IT support -- and that's what we want to do -- the tax resident in Sweden, and at the same time, the U.S. citizen, U.S. resident

regarding investment advice, all this means that we have to keep track of very different categories of U.S. persons as well for such purposes.

FATCA apply country-to-country KYC rules, but it seems to us inconsistent with regulations. It will be a challenge for both the IRS and the financial service industry to make this work. Therefore, we want to emphasize the importance of the FATCA partnership agreements. The only viable solution is to build on the current tax reporting to local tax authorities, exchange of information between states, secure legal certainty. We want to build on country-to-country reporting and the already functioning EU savings directive and mutual assistance directive.

This would also benefit U.S. interests since all FFIs would be obliged to report, and not only participating FFIS.

Sweden is a transparent taxed country, high taxed country, not a country where tax evaders hide. Sweden has already efficient tax reporting in place, a base for successful efficiency in collecting taxes. Partnership agreements ensures the legal certainty that we all strive for.

Thank you for your attention. We would be happy to meet with the IRS and discuss further details and cooperate to make the FATCA partner agreements successful.

MS. OLSSON: Thank you.

MS. HWA: And next we have Mr. Frederic Batardy with the European Banking Federation.

MR. BATARDY: Well, good afternoon ladies and gentlemen. My name is Frederic Batardy. I chair the U.S. Tax Issues Working Group at the European Banking Federation in Brussels, Belgium. The EBF is the united voice of banks established in the European Union and the European Free Trade Association Countries, EFTA.

It represents the interests of more or less 5,000 banks, which are large or small, wholesale and retail, local, cross border, financial institutions. The comments that we have submitted in the past and now on the 30th of April on the draft regulations have been filed together with our friends from the Institute of International Bankers.

The fate of the penultimate speaker is that most of the topics have been covered. I will try to be brief and would nevertheless like to touch upon five topics and hopefully, perhaps, show a different perspective as has been done until now.

So the first topic is what Keith referred to the whining on the effective date, the second one, the partnership agreements, the third one would be limited branch and affiliated rules. And then fourth one, commercial entities, the definition of commercial and noncommercial investment entities, and the fifth one, is the re-documentation issue for documentation, that's been touched upon, as well. Effective date. Effective dates for voting agents to have new account documentation procedures in place are January 1, 2013, for U.S. FIs, and July 1, 2013 for FFIs. It's been a consistent position of the EBF to say that financial institutes, institutions, need sufficient lead time to adapt the IT systems and procedures before they can apply FATCA requirements in an appropriate way.

With effective dates a mere six months away for U.S. FIs, and 12 months for FFIs, it will be difficult, if not impossible, for financial institutions to meet required target dates for new account opening procedures and the related systems to be in place.

This is not to say that financial institutions have been idle until now. Many institutions would have started looking at the existing client base, based on the guidance provided by Treasury and the IRS and the notices and the draft regulations.

For example, many financial institutions have used and will continue to use the time prior to the publication of the final regulations to assess the gaps between capabilities of their current systems and procedures, as well as the requirements introduced by the draft regulations.

These assessments will cover any needs to upgrade the systems or determining that the existing systems will have, more likely than not, to be scrapped and new ones developed. It is clear, however, that no green light can be given to IT departments to start to make any significant, and therefore, costly developments before draft regulations have been finalized. And further than that, forms regarding certification, identification, or reporting have been made available.

While the EBF very much welcomes the event of the intergovernmental agreements, the IGA's, this advent of the agreements has created new concerns and uncertainties for many FIs because many of the larger institutions operate both in partner, and non or not yet partnered countries.

Regarding the effective dates, it's not clear whether these will be in line with the ones under the FATCA regulations, creating additional uncertainties for financial institutions that operate across borders, leading possibly to what we fear, a myriad of effective dates across a single group.

Assuming that regulations, model FFI agreements, certification forms and instruction are finalized by September 30th of this year, the effective dates for new accounts due diligence and documentation should be set no earlier than the first of January, 2014, at a minimum. Should this not be possible, we recommend that the final regulations provide for some grace or transitional period that would allow FFIs to implement the procedures in good faith until 2015.

The second topic, the FATCA partnership agreements, EBF welcomes the news after five of the largest member states of the European Union have agreed to adopt an intergovernmental approach with the U.S.A. to implement FATCA. And so far, as at least as we understand it, these agreements are firstly, aiming at reducing compliance costs for FFIs, and secondly, aiming at addressing legal obstacles that have been identified under FATCA in the member states of the European Union. And the representatives of (inaudible) Bank have shown what the legal impediments can be in one single group.

We have, however, the following concerns. The first one is the uniformity of the rules. There's currently no indication that the rules in the IGA's would be uniform, uniform with one another, and just as important, uniform with the final regulations.

At this point in time, we wish to emphasize that the arrangements that are entered into between the United States and particular countries should, to the maximum extent possible, be uniform with one another and consistent with the final regulations so that FFIs and their affiliates are not required to apply different rules and systems to implement FATCA in the various countries in which they operate.

The second one, calendar timeline, negotiations with the partner countries on legal conflicts and sovereignty related issues may further delay the release of the agreements and their guidelines applicable to FFIs located in partner countries. As bilateral agreements currently constitute the legal

framework for this approach, we must be aware that the ratification process, both in partner countries and the U.S.A, may be long and may create further delays.

We fear that the negotiation and ratification calendar cannot realistically be aligned on FATCA's effective date. We therefore recommend that a transitional period be provided under FATCA and the IGA's during which the institutions operating in the partner countries can adapt their systems and procedures while being exempted from the requirements that would otherwise be applicable under a fully fledged FATCA approach.

Third point, the implementation of the limited branch and affiliated rules; the limited branch and affiliated concepts are designed to allow an FFI expanded affiliated group to be treated as participating if it identifies and designates those branches and affiliates that are in limited, i.e., complying that are in limited in noncomplying jurisdictions, provided they take as many steps as legally possible to comply with the regulations without violating the local law.

Although this concept allows the affiliated group to access participating status it suffers, in our view, two principal weaknesses. It ends on December 31, 2015, when the status of the limited branch or affiliate will obtain the participating status of the whole expanded affiliated group.

The limited branches and affiliates will already be treated as nonparticipating and be subject to full FATCA punitive withholding, irrespective of the efforts the jurisdictions may have made during this interim period.

We believe that limited branches and affiliates should not be subject to the full FATCA withholding during the interim period until the 31st of December, 2015, as this would, amongst other things, jeopardize the political process already under way between the limited countries and the U.S.A.

We would also recommend that expanded affiliated groups are allowed to remain participating FFIs after the end of this transitional period. If not, expanded affiliated groups which generally would be the larger financial groups, would be in the unacceptable and untenable position of being treated as nonparticipating FFIs after having invested significantly in efforts to comply with FATCA. It would also trigger unintended withholding on millions of transactions and corporate actions that account holders and payees would want to claim back.

The distinction between commercial entities and noncommercial investment entities: under the current definitions and the interplay between 1471 DC(5)(c), and 1472D, all non-U.S. investment entities, no matter how small would be classified as financial institutions, leading an unimaginably high number of entities to fall under a very complex FFI status and having to fulfill onerous obligations.

Based on our analysis, only very few real estate type entities would be passive NFFEs. We firmly believe that this cannot be the intended purpose of the act. Just to give you an illustration, I also work as a tax advisor in a bank that's present in eight different geographic locations.

I've come across the following entities: in the Netherlands, Administratiekantoor BV, in Germany, unterstutzungsverein, another Dutch Stamrecht BV, and in France, monetaire economique. Any other European country can have Groupe monetaire economique.

The problem is that these entities are not really entities. They are more contractual arrangements structured under a corporate-like veil. More often than not, they have no employees or administrative structures.

So our proposition is to make this distinction and to move these entities into the NFFE classification with the accompanying certification, which we believe would allow the proper FFIs, which have commercial activities, to be the real FFIs, fulfilling all of their obligations while the more sort of private NFFEs would be out of the FFI definition.

I will leave the last topic, which is the documentation; it's been covered by other speakers. I'd like to thank you very much for listening to us and we look forward to working with you in the future. Thank you.

MS. HWA: Next we will have Mr. Michael Bernard, representing Tax Executive Institute Incorporated. MR. BERNARD: Good afternoon. I'm Mike Bernard of the Microsoft Corporation, but today I'm testifying in my role as a member of Tax Executives Institute, better known as TEI. Thank you for the opportunity to comment on the proposed FATCA regulations.

TEI's members work for 3,000 of the leading corporations around the world, the vast majority of which are nonfinancial institutions. We therefore have a unique perspective on the implementation and administrative challenges of Chapter 4.

Before turning to specific recommendations, I have two overarching concerns. First, the regulations say little about issues relevant to nonfinancial institutions. As a result, there are many areas in need of modification and clarification. And second, there is little awareness among nonfinancial institutions and even their advisors of the Chapter 4 obligations. We hope our written comments and testimony today will help remedy the first concern, which should then alleviate the second.

Turning to items of specific concern, the general definition of a financial institution includes any entity that accepts deposits in the ordinary course of a banking or similar business. The regulations then define a banking or similar business, in part, by reference to a list of eight activities, one of which is accepts deposits of funds.

Because the list of activities constituting a banking or a similar business repeats the general requirements that an entity accepts deposits, there is a circularity problem that makes it unclear what purpose is served by the remaining seven activities.

TEI recommends that the IRS clarify whether an entity that does not accept deposits and yet engages as one of the other activities, would nevertheless be considered a financial institution. TEI also recommends modifying the first definition of a financial institution, to include a threshold requirement, so that an entity is not a financial institution unless 20 percent or more of its income derives from the list of eight activities that constitute a banking or a similar business.

And finally, TEI recommends providing a definition of deposit to preclude application of the rules to businesses engaged in leasing real or personal property, since such businesses routinely demand deposits from their customers.

Next, to clarify the exception to the definition of a financial institution for a hedging or financing center of a nonfinancial group, we have three recommendations. First, an illustrative list of financing or hedging activities should be added to the exception. TEI's written comments include specific suggestions.

Second, the regulations should adopt an objective test of when an expanded affiliated group is primarily engaged in a nonfinancial business by referencing the group's gross income over a certain period of time, but excluding the income of group members that are accepted NFFEs.

Finally, the exception should permit hedging or financing centers to provide de minimis services to unrelated parties in certain circumstances. With respect to the exception for nonfinancial holding companies, TEI recommends first that the regulations define a subsidiary of such a holding company as a downstream member of the holding company's expanded affiliated group. And second, that the phrase substantially all of the activities be objectively defined based on the holding company's gross income.

Next, the regulations provide several exceptions to the definition of a withholdable payment. The primary exception is for payments for goods and other items in the ordinary course of a withholding agent's business. In TEI's view, the general definition of a withholdable payment, which includes U.S. source FDAP income, should be consistent with the definition of FDAP income under Chapter 3 of the code and not include most gains for the sale of property.

Consequently, there would be no need for an exception for payments for goods in the ordinary course of business because such payments would not be subject to withholding under Chapter 4 in the first instance. Alternatively, TEI recommends that all payments for goods, a narrower category than property, be excepted from the definition of a withholdable payment, regardless of whether the payment was made in the ordinary course of the withholding agent's business.

Such payments present a low risk of tax evasion and any additional compliance gained from requiring such payments to be in the ordinary course of business would be outweighed by the administrative burden on taxpayers required to prove that upon audit.

The last exception I would like to address is for payments made to active NFFEs. First, the proposed regulations set forth a standalone definition of passive income of NFFEs with limited cross references to other provisions of the code.

Instead of a standalone definition, TEI recommends cross referencing the definition of foreign personal holding company income under subpart F, including the exceptions there too. If the government believes the subpart F definition of foreign personal holding company income is over or under is inclusive, for purposes of Chapter 4, modifications could be made in the final regulations.

Second, the passive asset test requires that less than 50 percent of the assets held by an NFFE at any time during the preceding calendar year, be assets that produce or held for the production of passive income. Thus, an NFFE would be required to show on audit that at all times during the prior year 50 percent or more of the assets were non-passive, an impossible burden.

Consequently, TEI recommends that the asset test be modified to allow an NFFE to measure its assets based on an average of its assets at calendar or quarter year end, or even better, that the test be abandoned altogether.

Finally, the proposed regulations provide no guidance on how to measure 50 percent of an NFFE's passive income or assets. Income might be measured under U.S. or foreign tax principals or financial statement measures such as U.S. GAAP, IFRS, local country commercial law, or as reported to the NFFE's interest holders under some other method.

Similarly, assets could be measured based upon fair market value, book value, or adjusted tax basis under U.S. or foreign law. Since most NFFE's certifying their active status to withholding agents under this exception will have little familiarity with the Federal U.S. -- Federal Income Tax Principles, TEI recommends that NFFE's be permitted to elect the method by which they measure income and assets as long as the method is consistently applied.

Finally, we understand that the government intends to issue FATCA compliance forms later this year. If so, withholding agents will have little time to incorporate the forms into their internal processes before FATCA documentation must begin on January 1, 2013.

In this regard, comments, letters from the financial industry and the banking industry indicate that they will not be able to complete the work necessary to meet the January 1, 2013 effective date. If financial institutions and banks will have trouble meeting this deadline, then it will likely be an insurmountable task for withholding agents that are nonfinancial institutions.

In addition, under the current effective date timeline, the information, with respect to the foreign financial institutions that have entered into agreements with the IRS will not be available until July 1, 2013 at the earliest, which will generally require withholding agents to ask the FATCA documentation for such payees twice.

For these reasons, TEI recommends that the full documentation and due diligence rules of Chapter 4 only apply after January 1, 2014. Alternatively, TEI recommends that the requirement to collect withholding documentation be delayed to coincide with the first date that foreign financial institutions can provide documentation that they are participating foreign financial institutions.

Thank you for the opportunity to offer TEI's comments on the proposed FATCA regulations.

MS. HWA: And we have the last speaker of the day, Mr. Jacob Braun, representing the Bank of New York Mellon.

MR. BRAUN: Okay, lunch is coming soon. Okay. My name is Jake Braun, and I thank you for this opportunity to comment on the proposed regulations under FATCA on behalf of the Bank of New York Mellon.

The Bank is a global leader in providing a comprehensive array of services, our worldwide staff of over 48,000 professionals located in 36 countries, enables institutions and individuals to manage and service their financial assets in more than 100 markets worldwide.

Our global client base consists of financial institutions, corporations, government agencies, endowments and foundations, and high net worth individuals. Our asset and wealth management businesses have over $1.3 trillion in assets under management. Our security servicing business has over 25 trillion in assets under custody and administration. And our treasury services business processes $1.5 trillion in average global payments every day.

Clearly, FATCA has a major impact on our business. And while we support the goals, the policy goals behind FATCA, and of course we'll be compliant, it is essential that the final regulations create a workable regulatory scheme and give us sufficient time to modify our systems and implement new processes.

As with everyone else, I can only deal with a few topics here and I'll try not to be too repetitive. My first comment relates to the treatment of those acting as paying agents for participating foreign

financial institutions. It is our view that the obligations of a designated paying agent, as we define it in our letter, acting for a PFFI, should be derivative and not independent of the principle.

The Bank of New York Mellon frequently acts as a paying agent for foreign financial institutions, such as mutual funds, alternative investment and securitization vehicles, and other issuers of securities. In this capacity, we act solely as an agent for the FFI and do not have a direct account relationship with the investor.

Nevertheless, their proposed regulations appear to require that we document every payee on an account by account basis, irrespective of the obligations of our FFI client. This approach will result in unnecessary and costly duplication of effort and must be modified in the final regulations.

The issue is best illustrated by two simple examples. First, if a paying agent acting on behalf of a deemed compliant FFI is required to apply this Chapter 4 documentation responsibilities applicable to the agent, instead of those applicable to the fund, the benefits of deemed compliant status would be rendered meaningless.

As a further example, if that same FFI changes transfer agents, it appears that the new agent would have to apply the new account procedures to all existing investors, a duplication of effort that was unnecessary to begin with. This does nothing to further the objectives of FATCA.

As we noted in our comment letter, submitted jointly with the Northern Trust Company and State Street Bank and Trust Company, the final regulations should distinguish between two types of withholding agents. Those, such as custodians, and we are often a custodian, that have a financial account relationship with the payee. And secondly, designated paying agents, such as transfer agents, that act solely as agents for the payor and therefore do not have a financial account relationship with the payee.

In short, the final regulation should make clear that a designated paying agent steps into the shoes of the PFFI and that the FATCA obligations of the agent would be contractual and no more extensive than those of the PFFI principal on whose behalf it is acting.

All current and future agents of the FFI should, absent contradictory information, be able to rely on the conclusions reached by another agent as to the Chapter 4 status of investors. Our joint letter presents the issue in much more detail and suggests specific changes to the proposed regulations that will ensure proper due diligence while minimizing unnecessary and costly duplication of effort.

My next comment deals with a similar issue that arises in the context of introduced brokerage accounts. The proposed regulations provide that a clearing broker may rely on the certification of certain U.S. brokers as to the Chapter 4 status of introduced accounts. This provision, while helpful, should be extended to allow FATCA compliant U.S. and non-U.S. brokers to rely on certifications provided by participating FFIs acting as introducing brokers.

Pershing LLC and its international affiliates are wholly owned subsidiaries of the Bank of New York Mellon Group. As noted in Pershing's comment letter, the clients are generally financial institutions subject to FATCA. Pershing provides clearing and execution services to its clients and as part of this service, Pershing often maintains custody of securities on behalf of introduced customers.

In all cases, the introducing broker possesses the direct client relationship and introduced customers normally contact the introducing broker directly for all matters concerning the brokerage accounts. Generally, Pershing does not have the capacity or the capability to collect documents from the

introduced customers and it would be a terrible financial and administrative burden if it were required to create new systems and processes solely because of FATCA.

As you know, current rules under Chapter 3 and 61, do allow Pershing LLC to rely on U.S. introducing brokers to collect forms W8 and W9 from customers and to certify the customers' tax status. These longstanding rules acknowledge the fact that the introducing broker is the party closest to the customer.

The proposed regulations incorporate the provisions of Chapter 3. While helpful, it is unnecessarily restricted. The policy considerations that apply for U.S. brokers apply equally to Pershing's affiliates outside of the U.S. and participating FFIs acting as introducing brokers. We therefore propose that you modify the introducing broker rule, in the final regulations, to allow certification of Chapter 4 status for introduced accounts, so long as the introducing financial institution is a participating FFI. My next comment does relate to timing and I will be repetitive because I think this is probably the most important issue that we all face. As we noted in our joint letter with the other custodial banks, uniform new account implementation is needed for U.S. withholding agents and participating FFIs, and it should be delayed until January 1, 2014, at the earliest.

Under the timeline of the proposed regulations, a U.S. withholding agent would be required to apply new account procedures for accounts opened after January 1, 2013, while PFFIs have another six months. This disparity in new account cutoff dates creates an unlevel playing field between U.S. withholding agents and FFIs.

It also creates a six month period during which FFI customers will be unable to comply with the withholding agents' new account documentation requirements. In addition, the affiliated groups of one of our organizations and many other global financial institutions, consist of both U.S. withholding agents and FFIs.

We like to build a single solution when we can for all affiliated entities within our respective groups, so staggered start dates in the proposed regulations invites development confusion and increases risks of error.

We do not believe that the proposed regulations take into account the fact that FATCA requires extensive changes with respect to both systems and procedures, and as many comment letters have stated, financial institutions need a full 12 to 18 months after the issuances of new forms and final regulations to design, build, test, and implement new systems. We therefore request that the effective date for new account procedures be delayed to no earlier than January 1, 2014.

My final comment relates to securitization vehicles. I do not have time to address this topic in any detail, however, as suggested by several industry associations, including SIFMA and the LSTA, a certified deemed compliant exemption must be created for existing securitization vehicles. This status should extend to both debt and equity issued by the vehicles.

Thank you very much for this opportunity to provide these brief comments. We welcome the opportunity to discuss these issues with you in more detail and it's time for lunch.

MS. HWA: This concludes our hearing and enjoy your lunch.

(Whereupon, at 13:53 p.m., the HEARING was adjourned.)