The big day has almost arrived for financial institutions around the world as they have to decide whether to declare their hand and sign up for the US Foreign Account Tax Compliance Act (FATCA) or stop doing business with American customers.
That’s effectively the choice for banks, investment funds and other financial firms who have a presence in the USA.
Failing to comply with FATCA could mean a 30% withholding tax on all their attractions in the US – with a worst case scenario of being denied access to a rich vein of business in the States.
The signs are thousands of financial institutions are ready to submit to the will of President Obama and the US Treasury despite some minor opponents running interference.
US expats claim FATCA is in an infringement of their rights – especially their privacy.
80 countries negotiating terms
Cynics might suggest that they only value that privacy so much because they may well have something to hide from the Internal revenue Service rooting about in their financial affairs.
Some claim Americans are giving up their passports to avoid the tax, but the evidence is out of a population of around 300 million, less than 1,500 citizens handed back their passports last year.
The US Treasury is also pushing for simpler information sharing powers with other nations to make FATCA negotiations with other governments easier.
A spokesman confirmed 80 countries are negotiating FATCA treaties with the US, although two notable stallers are Canada and China.
The IRS is due to open an online registration portal for international financial institutions by July 15, 2013.
Banks ready to sign up
FATCA compliance starts from January 1, 2014, so financial institutions have little time to make their decisions and sign up before the October 25, 2013, deadline.
Many, according to FATCA consultants, still have no computer systems or processes in place to identify their US customers and make reports either to their governments or the IRS about their finances.
FATCA applies to every US taxpayer with offshore assets totalling $50,000 or more. That does not only mean the nation’s estimated 5 million expats, but anyone within the States who has holdings offshore as well.
Financial firms fear the portal will not open in time and that servers will overload with the weight of data. Some are calling for the US Treasury to waive late registration penalties before the system is switched on.
So far, the Treasury has made no comment other to confirm they are working towards FATCA going live on July 15.
