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US Treasury Believes Momentum Building For FATCA

by Mike Godfrey,, Washington

12 April 2013

As offshore tax evasion comes under increased international scrutiny, the United States Treasury Department has continued to ramp up efforts "to promote global tax transparency" through implementation of the Foreign Account Tax Compliance Act (FATCA), and believes that its efforts are building momentum worldwide.

Enacted by Congress in March 2010, FATCA is intended to ensure that the Internal Revenue Service (IRS) obtains information on financial accounts held abroad at foreign financial institutions (FFIs) by US taxpayers. Failure by an FFI to register with the IRS by January 1, 2014, and subsequently disclose information, will result in a requirement, from next year, to withhold 30% tax on US-source income.

Over several months, Treasury said that it has been working with Governments and FFIs to put into operation the information reporting and withholding tax provisions within FATCA.

For example, Treasury has published two model intergovernmental agreements (IGAs) that serve as a basis for concluding bilateral agreements with jurisdictions to implement FATCA. Treasury has been working to streamline the process of entering into an IGA so that any interested jurisdiction may enter into an IGA prior to January 1, 2014.

The Department is currently engaged with more than 75 jurisdictions and has already concluded bilateral agreements with the United Kingdom, Denmark, Mexico, Ireland and Switzerland, and has initialed bilateral agreements with Spain, Italy, Norway and Germany. Treasury has confirmed that it will "continue to engage willing partners worldwide to ensure implementation of FATCA."

In addition, earlier this year, Treasury and the IRS issued comprehensive final FATCA regulations. These regulations provide certainty for Governments and FFIs by finalizing the step-by-step process for US account identification, information reporting and withholding requirements for FFIs, other foreign entities and US withholding agents.

Additionally, to limit market disruption, reduce administrative burdens and provide certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and from reporting for certain non-financial or low-risk entities.

However, the inclusion in President Obama's budget this week of "reciprocal" regulations which will impose FATCA-style disclosures on US financial institutions directed at benefitting foreign IGA partners may set the cat amongst the pigeons in Congress, where there is already a head of discontent in respect of FATCA.

TAGS: individuals | compliance | tax | business | tax information exchange agreement (TIEA) | tax compliance | Denmark | Ireland | FATCA | law | Mexico | Norway | United Kingdom | agreements | legislation | withholding tax | Germany | Italy | Spain | Switzerland | United States | regulation | Compliance

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