FATCA Final Rules Released By IRS

FATCA

FATCA final rules compelling more than 300,000 foreign financial institutions (FFIs) to reveal details of US taxpayers who hold accounts with them and how much money they have were published by the US Treasury.

The hefty 544 page report is the final and definitive set of reporting regulations, says the Treasury.

A growing number of countries – including the UK and Ireland –  have already signed up to the Foreign Account Tax Compliance Act (FATCA), which states that the FFIs must register with America’s Internal Revenue Service (IRS).

However, those in countries with intergovernmental agreements no longer have to report directly, but must do so at a government level to help foreign governments deal with their domestic legal issues such as data protection.

After the UK government signed up, many financial institutions realised that the cost of implementing FATCA and complying with the data requirements was not going to be as simple and straightforward as they first thought.

Clarifying FATCA agreements

Now FATCA’s implementation has been delayed until January 2014 and the new set of guidelines help answer some of the fears which have been raised.

Neal Wolin, the US Treasury deputy secretary, said: “The regulations provide a powerful tool in combating offshore tax evasion and the final rules are a milestone in establishing international cooperation on these issues.

“They also provide important clarity on compliance for foreign and US financial institutions.”

When FATCA is implemented, it will enable the IRS to collect taxes from US citizens around the world – and the penalty for a FFI failing to comply is to be subject to a withholding tax of 30% on all financial transaction between it and the US.

The US Treasury says its new rules clarify the agreements which have already been signed by governments; establish timelines for due diligence and reporting information. Guidelines are also clarified for exemption rules and define what investments are covered by FATCA.

Offshore banks close accounts for US taxpayers

The final rules also clarify the legal compliance and verification requirements of the FFIs.

Financial institutions in the UK have yet to respond to the report but welcome publication.

A spokesman for the Investment Management Association, which represents fund managers in the UK, said the final rules had some ‘welcome elements’ to help compliance.

Around a dozen countries have signed up to FATCA, but the US Treasury has revealed that more than 50 countries have begun negotiations.

However, one unexpected result of the regulations is many FFIs are finding closing the accounts of US citizens cheaper and easier than complying with the rules.

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FATCA Final Rules Released By IRS

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