Russia will sign up to the US Foreign Account Tax Compliance Act (FATCA) within six weeks on direct orders of the deputy prime minister.
Dmitry Medvedev has instructed the Russian Finance Ministry and central Bank to stop dilly-dallying over the international tax law and agree terms with the US by January 20, 2014.
A draft treaty will ensure Russia’s Federal Tax Service collects FATCA data from banks and other financial institutions for transmission to the US Internal Revenue Service.
Many leading Russian politicians and economists baulked signing a FATCA deal with Washington on the basis that the US was interfering with the nation’s internal financial regulations.
Medvedev seems to have had enough of the bickering and has put an end to the protests with his directive.
Tax network
Not joining FATCA would have seen Russia’s banks directly signing up for FATCA, which would breach the country’s privacy and data protection laws. No doubt the government views joining FATCA as easier than fighting the opposition to change law.
Russia is a big scalp for the US Treasury to hang on its FATCA belt.
After a year or more of will they, won’t they uncertainty over a number of financial jurisdictions, most are caving into pressure from the US, Europe and the Organisation of Economic Co-Operation and Development (OECD) to sign up to FATCA.
Besides Russia, Canada, Switzerland and the Asia Pacific finance centre of Singapore have all relented and indicated they will join the tax network.
Most British overseas territories and crown dependencies once considered important tax havens have also thrown in the towel and signed a similar agreement with Britain, which was the first nation to pen a FATCA agreement or signed a direct agreement with the US.
FATCA penalties
Effectively it’s an ‘either…or’ arrangement as the British tax deal means the financial information is also shared with the US.
In the end, few countries will not sign FATCA unless their financial institutions have no US clients with accounts holding $50,000 or more at the end of each tax year.
The reason is US banks and financial firms will deduct a 30% withholding tax on any offending foreign firm outside FATCA, effectively freezing a significant portion of their cash flow and assets and cutting them off from the US banking system and inviting commercial suicide.
The US Treasury is thought to be negotiating FATCA agreements with more than 50 countries. China is the one nation that has not revealed a stance over the tax exchange law.
Another ‘watered down’ FATCA IGA so the US can claim it’s got another country. What will be exempt? Pensions, tax free accounts backed up by low fines if a Russian bank cocks up? Again it’s about establishing the principle rather than the law that will come later when things are tightened up.