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EU Requests FATCA Talks With US

by Ulrika Lomas, Tax-News.com, Brussels

08 April 2011


In a letter sent to the United States Treasury Secretary, Timothy Geithner, and the Internal Revenue Service Commissioner, Douglas Shulman, the European Council and the European Commission have pointed out the potential negative effects that the US Foreign Account Tax Compliance Act (FATCA) could have on the European financial industry.

FATCA was enacted by the US in March 2010 and is intended to ensure that the US tax authorities obtain information on investments by US residents in foreign financial institutions, including European Union (EU) financial institutions. Failure to disclose information would result in a requirement on non-US financial intermediaries to withhold a 30% tax on US-source income.

For example, the name, address and taxpayer identification number (TIN) is required of each account holder who is a specified US person; and, in the case of any account holder which is a US-owned foreign entity, the name, address, and TIN of each substantial US owner of such entity. The account number is also required to be provided, together with the account balance or value, and the gross receipts and gross withdrawals or payments from the account.

EU financial institutions (including banks, investment funds and insurance companies) have expressed concerns about the legislation, in particular the costs of compliance and penalties that will ensue in case of non-compliance. The European financial industry has estimated that the costs of modifying their IT systems, and the administrative burden of ensuring compliance with FATCA, would be significant.

The letter from the Chair of the European Economic and Financial Affairs Council, Hungarian Finance Minister György Matolcsy, and the European Commissioner in charge of Taxation Algirdas Šemeta, invites the US tax authorities to engage in a dialogue on how to best achieve FATCA’s objectives.

In this regard, it has been pointed out that FATCA's goals are similar to those of the EU Savings Tax Directive which provides for an exchange of information between tax authorities of EU member states. In light of the information exchange tools that already exist between tax administrations, and given the on-going discussions on extending the scope of the Savings Tax Directive, the European Council and the European Commission have invited the US authorities to consider exploiting possible synergies between the two systems in order to save on costs.

The issue has been discussed with EU member states, and their support has been obtained for an EU-wide approach aimed at exploring solutions that would ensure that US tax authorities can obtain the information they require on investments by US residents in foreign financial institutions without any excessive burden on the EU financial industry.

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report2.asp
TAGS: compliance | tax | offshore confidentiality | European Commission | tax compliance | law | banking | financial services | Internal Revenue Service (IRS) | offshore | legislation | withholding tax | United States | regulation | penalties | European Union (EU) | services | Europe

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