The Internal Revenue Service (IRS) has issued yet another final Foreign Account Tax Compliance Act (FATCA) guidance document for foreign financial institutions.
The latest release promises a ‘light touch’ enforcement regime for the first two years of the new tax law.
The transition period pledges the IRS will consider good faith foreign financial institutions have shown trying to comply with the tax law – but has warned that those making no attempt to meet the measures can expect no mercy from sanctions.
The IRS also announced some changes to technical regulations for foreign financial institutions.
“The transition period is mainly for multinational banks with branches in countries that have no FATCA agreement as well as in countries that do,” said an IRS spokesman.
Pakistan races for deadline
FATCA is a US law requiring offshore financial institutions to report details about bank accounts and investments of more than $50,000 controlled by US taxpayers.
More than 50 countries are reporting via their tax authorities, but around 770,000 financial institutions in more than 100 countries must sign up to the FATCA online portal and send their reports on US customers direct to the IRS.
Organisations that fail to do so may face fines and sanctions imposed on their financial activity in the US.
FATCA reporting starts on July 1, 2014.
Many governments are hotting up FATCA treaty negotiations with the US in a bid to meet compliance deadlines.
In recent days, the Pakistan government has warned financial institutions in the country to sign up with the FATCA portal.
Hong Kong, Kuwait and Israel FATCA compliant
An inter-governmental tax information swapping agreement is under negotiation but has stalled and agreement may not meet the official deadline.
“The State Bank of Pakistan is in talks with the US Treasury,” said a statement from the bank. “We will sign a FATCA agreement but are just warning banks and other institutions to register as a precaution.”
Kuwait has become the fifth Gulf State country to agree a FATCA pact with the US, according to announcements over recent days.
Only Oman is out in the cold, as Saudi Arabia, Qatar, United Arab Emirates, Bahrain and Kuwait are all on the IRS FATCA white list of compliant countries.
Elsewhere, Israel has penned a FATCA treaty and has also joined the white-list.
Compliance is on the way for Hong Kong, after the provincial government agreed a tax information sharing agreement that opens the way to sign a FATCA treaty.
