US Foreign Account Tax Compliance Act Takes Force
In what the United States Administration has called an “effort to crack down on tax evasion and reduce the tax gap,” the Foreign Account Tax Compliance Act came into effect on July 1.
Enacted in March 2010, FATCA adds to the Internal Revenue Services (IRS) arsenal to detect non-compliance by US citizens with their tax obligations. The Act secures access for the IRS of information on accounts with a balance of over USD50,000 held in foreign financial institutions (FFIs) by US taxpayers. Failure by an FFI to disclose information on their US clients – including account ownership, balances, and amounts moving in and out of the accounts – will result in a requirement to withhold 30 percent tax on US-source income.
Deputy Assistant Secretary for International Tax Affairs Robert B. Stack said: “Over the past several years, FATCA has become the global standard in combating international tax evasion and promoting transparency. With FATCA agreements treated as in effect with nearly 100 jurisdictions, and more than 80,000 financial institutions already registered to comply with the IRS, the international support for FATCA is without question.”
Foreign Governments have had two options to support their financial institutions in complying with FATCA; they could have either permitted their FFIs to enter into agreements with the IRS to provide the required information, or they could have entered into one of two alternative model intergovernmental agreements (IGAs) with the United States.
Under a Model 1 agreement, which most territories have secured, FFIs report the relevant information to their respective governments, which then relay that information to the IRS. By contrast, a Model 2 agreement contemplates that FFIs will provide relevant information to the IRS themselves, with government-to-government cooperation serving to facilitate reporting when necessary to overcome specific legal impediments.
However, the actual importance of July 1, 2014, has been somewhat diminished by transitional rules announced in May this year that the IRS would regard calendar years 2014 and 2015 as an enforcement and administration transitional period with respect to FATCA implementation.
Although FATCA has still gone into operation, the IRS will, with regard to its reporting, due diligence, and withholding provisions, and so as to “facilitate an orderly transition,” refrain from rigorously enforcing many of its requirements in 2014 and 2015, as long as an FFI is making a good-faith effort to achieve compliance.
Source: tax-news
