The FATCA delay bombshell has caught governments and financial institutions around the world by surprise.
The US Treasury web site for banks and finance firms to sign up for the Foreign Account Tax Compliance Act (FATCA) was due to open today (July 15, 2013), and in the run up with no apparent action , the financial world was getting the jitters with no word from the US government.
Then the statement came out of the blue just 48 hours or so before the web site should have gone live, delaying FATCA implementation another six months until July 1, 2014.
This is the second time the date has been wound back – last time it was until January 1, 2014.
But this has proved an impossible deadline due to the weight of negotiations and agreements underway with more than 80 countries, stretching the resources of the Us Treasury and Internal Revenue Service ultrathin.
Brave face
Opponents of the controversial legislation see the delay as a victory, while most of the financial sector interprets the lag as a measure of the problems the US Treasury faces doing deals in Washington and overseas to get FATCA working.
The Treasury and IRS have tried to put a brave face on the delay with a statement explaining they are listening to the financial community and the problems faced in complying with the legislation.
“Financial institutions back intergovernmental agreements as a resolution of legal conflicts FATCA causes their businesses,” said a spokesman. “These agreements are more efficient for everyone and get around cross border tax issues like privacy and data protections laws.
“However each one is a custom template and they are just taking more time than expected to work out because of the number of countries involved.”
The spokesman went on to detail how the delay will allow a “more orderly implementation of FATCA”.
Withholding conditions
In simple terms, the delay means the tax withholding conditions of FATCA will not start until July 1, 2014.
FATCA has struggled to get out of the blocks mainly because the legislation calls for an overhaul of the computer systems of the world’s financial network.
To comply with the rules, any financial firm outside America with US customers must identify those customers, figure out if their accounts are worth more than $50,000, and if they do, send the details to the US IRS.
To reciprocate, overseas governments are requiring US financial institutions to send the same information back to them on holdings by their nationals.
