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Reg. § 1.1446–3(c)(2)(i). In the case of a foreign partnership that has tax withheld bythe transferee under section 1445(a), the Regulations permit the partnership a creditagainst its section 1446 liability. Reg. § 1.1446–3(c)(2)(ii).200§ 6.06INFORMATION REPORTINGIn addition to the return and withholding requirements, taxpayers may also besubject to information reporting requirements that are imposed to provide the IRSwith information needed to verify a taxpayer’s tax liability. For example, suppose thata U.S. subsidiary of a foreign corporation purchases inventory from its foreign parentand resells the inventory in the United States. If the purchase price paid by the U.S.subsidiary to the foreign parent is more than an arm’s-length price, then the gaintaxable in the United States from the subsidiary’s sales to customers will beunderstated (and the foreign parent’s income which is not typically taxable in theUnited States will be overstated). To determine whether, the subsidiary has paid anarm’s-length price, it may be helpful to know the foreign parent’s costs of productionor the price which the foreign corporation sells to unrelated purchasers, if any.
Congress has enacted I.R.C. §§ 6038A and 6038C which require certain U.S.taxpayers or foreign taxpayers doing business in the United States to provide a varietyof information to enable the IRS to police arm’s-length pricing between relatedtaxpayers. The details of these disclosure provisions and the intercompany pricingproblem in general are discussedinfraat § 9.11.201§ 6.07FATCA REPORTING AND WITHHOLDING(A)BACKGROUNDIt has been estimated that the United States loses hundreds of billions in taxrevenues each year as a result of offshore tax abuse primarily from the use ofconcealed and undeclared accounts held by U.S. taxpayers or their controlled foreignentities. In 2009 Congress enacted the “Foreign Account Tax Compliance Act of2009” (“FATCA”).SeeI.R.C. §§ 1471–1474 and accompanying Regulations. TheFATCA withholding rules are coordinated with existing withholding rules to preventduplicate withholding.These rules are designed to combat offshore tax evasion by requiring non-U.S.financial institutions (foreign financial institutions or FFIs) and other offshorevehicles to report certain information pertaining to U.S. taxpayers holding financialassets abroad. The intent behind the law is to require FFIs to identify and report U.S.persons holding assets abroad and for certain non-financial foreign entities (NFFEs)to identify substantial U.S. owners. In order to comply with these rules, FFIs arerequired to enter into an FFI Agreement with the U.S. Treasury or comply withintergovernmental agreements (IGAs) entered into by their local government. U.S.