Expat investors with US holdings can relax as the onslaught to quell tax management by the wealthy eased as lawmakers cancelled some new legislation.
In a reverse FACTA, the Internal Revenue Service (IRS) was to demand US financial institutions supply details of payments to non-residents – and these financial details would then be passed back to the non-resident’s tax authority.
However, under an amendment to the Red Tape Reduction and Small Business Job Creation Act, the rule has been cancelled.
In April 2012, the US Treasury issued instructions to banks and other financial institutions to report interest paid on deposits to all foreign citizens from January 1, 2013.
The rule already applies to Canadians with holdings in the US.
The move has stirred considerable opposition in Washington and from wealthy non-residents living in the US – and lawmakers buckled under the pressure in the fear that bringing in the rule would see a massive outflow of foreign investment.
The government argued that the law was an essential part of the campaign to tackle offshore tax management, and would aid the IRS in exchanging information relating to tax enforcement with other countries – especially the UK, France, Germany, Spain and Italy.
The opposition may not be out of the woods yet – the cancellation still awaits approval by President Barak Obama, who has staunchly obstructed any law changes that would cost the US $100 million or more in lost revenue until unemployment drops to below 6%.
The president has also voiced his approval of the bill.
Eric Sandberg, president of the Texas Bankers Association said: “This regulation is unnecessary as current law allows the IRS to access the information through a simple request to any financial institution and the Treasury admits across-the-board reporting without any request or justification was adopted without any cost-benefit analysis.”