The FATCA fiasco is down to governments clogging the corridors of power in Washington DC with red tape, according to some international financial experts.
FATCA – the Foreign Account Tax Compliance Act – was due to come in to effect from January 1, 2013, but the US Treasury has pushed this back a year.
The official excuse is the delay gives foreign financial institutions, like banks, investment funds and insurance companies, more time to prepare their systems for FATCA.
This is a mammoth operation as FATCA deigns every foreign financial institution must send a report on the holdings and earnings of any US taxpayer they have as a client to the US Internal Revenue Service.
However, the whisper is the real reason FATCA is on the backburner has more to do with crafty foreign government lawyers buying time by negotiating intergovernmental agreements (IGA) with the US.
These agreements are all bespoke for the nation involved and can give some foreign financial institutions get-out clauses to reduce the reporting to the IRS.
So far, only one country has signed an IGA with the US – Britain.
In the queue are New Zealand, Australia, Spain, Germany, France, Italy, Guernsey, Jersey and the Isle of Man to name but a few.
Others suggest the US did not quite realise the enormity of the task of reciprocating FATCA information with foreign governments – it’s the same rules in reverse because each US financial institution will have to identify every foreign taxpayer from a country with an IGA.
Another theory is the US must have all IGAs in place before FATCA starts.
FATCA won’t go away
Some hope that the forthcoming Presidential election will make FATCA go away – but that’s unlikely as the legislation is already signed off by Barak Obama.
Whatever the reason, FATCA is another year away and everyone has more time to ready their tax affairs.
“The IGAs are bringing further complexity to the picture, because of the variety of requirements that they introduce,” said Colin Camp of FATCA solution provider Dion.
“The delay highlights the scale of the legislation and the implications of the implementation. This has increased still further with the arrival of IGAs, which have introduced input from multiple other countries on what form customer classification and remediation requirements should take, particularly as most of the IGAs under discussion are reciprocal.”