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.
Conspiracy theory
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.”
Interesting Post.
I wished I was a fly on the wall at Treasury to know for sure, but I too believe, (not just faith based) that the IGAs are the reason these delays are happening, and not just relief for the FFIs to follow the prompting of the FCC (FATCA Compliance Complex) co-enablers to hurry up and buy our services so you can be compliant..
Robert Wood, at Forbes Tax Blog, had an Post today, with the Headline, FFIs Brace for FATCA.
I would change that to BRACE for “FATCA Fiasco Fallout!”
https://www.forbes.com/sites/robertwood/2012/10/29/as-foreign-banks-brace-for-fatca-you-should-too/
I have posted a comment to that effect, that the fallout from the IGAs will be the repatriating of the costs back onto the US Banks and the US financial shores. This will, I hope, create the interest and opposition in Congress for examining (and reigning in) what the IRS is up to.
Time will tell if this view is right, but maybe some crafty attorneys from other countries are complicating FATCA with red tape, and making FATCA in its present 388 pages of complex rules, even more difficult to implement.
Of course, you would not know any of that, if you just read all the posts and press releases from the FCC like this one from KPMG.
https://blog.kpmg.ch/financial-services/irs-provides-further-insights-into-final-fatca-regulations/
FATCA is a gold mine for them, and they will mine it as much as they can. Better get busy to comply, comply, comply, or NOT! 🙂
JUst_Me_Also is exactly right. See: https://isaacbrocksociety.ca/2012/10/24/jim-jatras-responds-to-isaac-brock-society-on-fatca/ . The delay indicates that Treasury is finding it slow going to convince countries to deputize (excuse me, “partner” with) on enforcing FATCA on themselves. If they can’t step up the pace, it’s doubtful they can make FATCA work at all (see the above link). Intergovernmental agreements (IGAs), of which only one (with UK) has been signed so far, are essential to FATCA’s survival, and the Treasury department knows it. So do practitioners who hope to educate their kids and retire on a huge FATCA windwall, for whom any talk of delay — much less repeal! — sends a cold chill up their spines. The problem is, domestic US firms remain oblivious, foreign firms and governments are still thinking about IGAs as a solution to their FATCA problem, not a way to save FATCA from its own unworkability. It’s time to Just. Say. No, put effort and resources into repeal effort, not compliance and negotiating counterproductive IGAs.
I fail to see how an IGA with any country that does not tax based on citizenship could be of any benefit to those countries! When someone moves out of a country that doesn’t tax on citizenship they don’t live there so no tax is collected. The U.S. benefits because they use a system of tax slavery for the rest of your life no matter where you live in the world and even if you have zero U.S. assets. It’s an insane system to begin with and no IGA with countries that tax based on residency will benefit those countries. God help Canada if they sign this fool hardy IGA they can’t seem to yet agree on.