FATCA Hits The Buffers In Russia

American legislation aimed at revealing the financial details of US taxpaying citizens around the world has hit another stumbling block as yet another country has baulked at handing over personal financial information about individuals.

The Foreign Account Tax Compliance Act (FATCA) compels foreign financial institutions to register with the Internal Revenue Service (IRS) and then for them to disclose the account details of any American taxpayer clients.

Failure to comply will see the institution being hit with a 30% withholding charge on all financial transactions between it and the US.

Several countries have already signed up to FATCA, which is due to be implemented from January next year.

However, there is a growing chorus of disapproval from a number of countries including China and Taiwan who say they have no intention of implementing the law.

FATCA deemed illegal

Other major economies, such as Germany and Japan, have indicated that they will sign up, but are dragging out the relevant negotiations.

Now Russia has stepped up to say implementing FATCA is illegal in the country as the rules are contrary to Russian and international laws.

The Russian Foreign Ministry has also declared that the country’s financial institutions would break local laws if they enter into any agreement with the IRS.

The Bank of Russia has backed up the Foreign Ministry’s stance and said that FATCA undermines the principle of equality among sovereign states.

One of the reasons why is no similar agreement for US-based financial institutions to reveal the details of its foreign clients to other governments.

However, financial institutions in Russia are already highlighting the issue of FATCA to their clients especially those with deposits based in foreign currencies, which will be badly affected by the withholding charge.

Reputation risked

The Russian banking industry is also acutely aware that it is in danger of risking its international reputation by standing outside of the new legal framework.

They also realise, like many other countries, that by implementing the law they will contravene their own domestic laws on financial secrecy and data privacy.

The only solution is for the Russian government to sign a new bilateral tax agreement with the US, but that now appears unlikely after the Foreign Ministry’s declaration.

Under Russian law, tax authorities can demand information on any client account from a bank as part of an investigation and the law also makes the banks responsible for what could be termed ‘illegitimate’ withdrawals.

Part of the same law allows Russian authorities to pass on that financial data requested by another country via any international treaty which has been signed by the Russian Federation.