The U.S. Foreign Account Tax Compliance Act (FATCA) may require financial institutions, including Cagamas Berhad or its trustee, to withhold taxes on certain payments to individuals or entities that do not comply with U.S. tax reporting requirements. While Malaysia has an intergovernmental agreement (IGA) with the U.S. that generally exempts Malaysian financial institutions from direct FATCA withholding, uncertainties remain regarding its application to instruments like bonds and sukuk. Specifically, the future definition and implementation of "foreign passthru payments" under FATCA could potentially impact these instruments.
Any potential FATCA withholding on bonds and sukuk would not apply until two years after the U.S. Treasury finalizes regulations defining "foreign passthru payments." Furthermore, debt-classified bonds and sukuk issued within six months of these regulations' publication may be "grandfathered," exempting them from withholding unless materially modified. However, subsequent issuances of similar instruments after the grandfathering period could subject all existing and new instruments to FATCA withholding. Investors are strongly advised to consult their tax advisors regarding the potential implications of FATCA on their investments. In the event of any required FATCA withholding, no additional amounts will be paid to compensate for the withheld taxes.