FATCA is postponed and the financial world can breathe a sigh of relief about the controversial law aimed at stopping US citizens managing their tax through overseas banks and financial institutions.
FATCA – the Foreign Accounts Tax Compliance Act – was due to start on January 1, 2013, for phasing in over a number of years.
However, the Internal Revenue Service (IRS) has pushed the date back 12 months – until January 1, 2014, to give financial businesses more time to put compliance procedures in place.
Many countries have struggled with implementing FATCA because many are awaiting drafts of the final rules and some countries have data protection laws that contravene the proposed transfer of personal and financial information required by the law.
The US government wants all financial organisations and their clients regardless of where they are located to prove they have no form of tax liability to the US.
Financial institutions and individuals that fail to agree to abide by FATCA face a 30% withholding tax on all proceeds arising in the US, whether through sale proceeds or the interest and dividend income from a fund or investment.
deVere Group CEO Nigel Green, explained FATCA has ‘serious, unintended negative consequences’.
He considers the law will force banks and wealth managers to act as agents for the IRS and could ultimately see the US losing a record number of businessmen and entrepreneurs.
“ FATCA may be the straw that breaks the camel’s back as America is the only developed nation in the world that taxes its citizens on income they earn abroad,” said Green.
“A sense of anxiety is building amongst Americans living overseas after being stranded by banks and wealth management firms since they perceive the FATCA process as too costly to implement and feel losing their US clients is a cheaper option than compliance.”
Nevertheless, deVere vows to remain committed to clients and to offer efficient solutions that are still in-line with US tax law, added Green.
Britain has already signed a reciprocal FATCA pact with the US that will see a two-way flow of information – from London to Washington with financial information about holdings and earnings of US citizens, and a reverse flow of tax information about UK citizens with investments and income in the US.
Other countries plan to sign up to create a global FATCA network, including Japan, Australia, France, Spain and Germany.