The US Internal Revenue Service has released a series of videos to help foreign financial institutions sign up for the Foreign Account Tax Compliance Act (FATCA).
The American law demands banks, investment funds and insurance companies to tell the IRS about US taxpayers who have accounts with a balance of $50,000 at the year-end or have breached $75,000 during the year.
The videos go hand-in-hand with new written guidance and a web portal for financial institutions to register confirmation that they have US clients and will comply with the tax law that takes effect from next year.
The IRS will start issuing electronic identification numbers to financial institutions in 2014.
The financial firms must register by April 25, 2104, to avoid sanctions by the US government.
Financial penalties
In June 2014, a list of registered institutions will be published that will effectively name and shame financial firms that are refusing to comply with FATCA or have no US clients.
Those they ignore their reporting obligations face a 30% withholding tax on any income generated in the US.
The penalty also sidelines the financial institution from the US financial markets and by extension, those in FATCA compliant countries like the UK and the rest of the European Union.
The videos on the FATCA help pages are:
- Creating a FATCA account for online registration
- Logging into a FATCA Account
- Recovering a FATCA ID or resetting a FATCA Access Code
- Registration System Common Features and Navigation
To date, the US Treasury has opened negotiations or signed FATCA agreements with around 80 states.
Financial institutions in nations that sign FATCA intergovernmental agreements will report financial information about US taxpayers through their tax authority.
Financial institutions in countries without FATCA intergovernmental agreements will have to send reports direct to the IRS.
FATCA critics
To register, financial firms must send the IRS trading names, mailing addresses, details of any branch offices and other basic information.
For critics of FATCA, the recent launch of the registration portal and now the first phase of guidance shows the US government is serious about introducing the controversial law that affects millions of Americans at home and overseas with foreign accounts.
The US is one of only two countries that taxes expat residents. The other is Somalia.
Official estimates put the number of US expats worldwide at around 6 million.
FATCA is also a reciprocal law for countries with intergovernmental agreements, as the IRS will collect and forward financial information about their taxpayers with accounts with US banks, investment funds and insurance companies.
Tax laws are complicated worldwide and India is one of them. The landscape of Indian Income Tax is no exception, with the maze created by taxation of notional income, retrospective amendments, and somewhat contradictory court decisions – life does get complicated.