Passive NFFE Sample Clauses

The Passive NFFE clause defines an entity as a Non-Financial Foreign Entity (NFFE) that primarily earns passive income, such as dividends, interest, or royalties, rather than active business income. In practice, this clause is used to identify entities that do not engage in substantial business activities and are instead investment vehicles or holding companies. The core function of this clause is to ensure compliance with tax reporting regulations, such as FATCA, by requiring disclosure of substantial U.S. ownership in these passive entities, thereby preventing tax evasion through offshore structures.