The Foreign Account Tax Compliant Act (FATCA) has reached a new milestone as the US government switched on the foreign financial institution registration portal.
Until now, many against the controversial tax law had a glimmer of hope the legislation may be repealed.
But the Internal Revenue Service and US Treasury are now showing FATCA is here to stay by inviting foreign financial institutions to sign up as organisations doing business with US taxpayers.
As a result of the declaration, the foreign financial institution will have to deliver an annual report to the IRS with details of the account holder’s name and date of birth, information about transactions and other account details.
The proviso is the account should have a balance of at least $50,000 at the tax year end or the balance should have topped $75,000 during the tax year.
No rush expected
The IRS is not expecting a rush of foreign financial institutions to sign up.
Many will deliver reports about their American clients to their own tax authorities as their country will have an inter-governmental agreement with the US.
More than 60 countries have signed or indicated they will sign these agreements with the US.
The agreement bypasses data protection and other privacy laws and also allows the country hosting the financial institution to collect reciprocal financial data about their own taxpayers from the IRS.
FATCA is a massive undertaking for financial firms.
Every financial firm outside America is trawling through their customer data to identify clients who are US taxpayers or organisations controlled by US taxpayers, like companies or trusts.
FATCA here to stay
Even if they have no American clients, foreign financial institutions will have to have the evidence available to refute any allegation from the IRS that they do have undeclared US clients.
The penalties for making errors or failing to register as a foreign financial firm are massive – up to a 30% withholding charge on all financial transaction in the US and even a ban from trading in the US for the worst offenders.
The work is just as time-consuming for American financial institutions who are reversing the process.
They have to list any non-US taxpayer clients and the countries where they are resident to report their financial details to the IRS for passing on to the tax authority in their home country.
There’s no doubt that the time and money the US and governments worldwide have invested in bringing their tax authorities and financial institutions up to FATCA speed will not go to waste and FATCA is here to stay whether US taxpayers overseas like the idea or not.