Releases Proposed Guidance for Foreign Financial Institutions under the Foreign Account Tax Compliance Act
WASHINGTON – The U.S. Department of the
Treasury and the Internal Revenue Service today issued a notice for
foreign financial institutions (FFIs) to comply with the information
reporting and withholding tax provisions of the Foreign Account Tax
Compliance Act (FATCA). FATCA is rapidly becoming the global standard
in the effort to curb offshore tax evasion. To date, Treasury has
signed nine IGAs, has reached 16 agreements in substance, and is engaged
in related conversations with many more jurisdictions.
The notice, which is the next step in
implementation, previews proposed guidance and provides a draft
agreement for participating FFIs directly engaging in agreements with
the IRS and those reporting through a Model 2 intergovernmental
agreement (IGA). It provides FFIs with advance notice prior to the
beginning of FATCA withholding and account due diligence requirements on
July 1, 2014. The FFI agreement will be finalized by year end.
“The Agreement and forthcoming guidance
have been designed to minimize administrative burdens and related costs
for foreign financial institutions and withholding agents,” said Deputy
Assistant Secretary for International Tax Affairs Robert B. Stack.
“Today’s preview demonstrates the Administration’s commitment to
ensuring full global cooperation and a smooth implementation.”
Congress enacted FATCA in 2010 as a way
to identify U.S. citizens using foreign accounts to evade their U.S. tax
responsibilities. FATCA requires U.S. financial institutions to
withhold a portion of payments made to FFIs that do not agree to
identify and report information on U.S. account holders.
Treasury has taken a global approach to
the exchange of tax information in its implementation of FATCA. To
address situations where foreign law would prevent an FFI from complying
with the terms of an FFI agreement, Treasury developed two alternative
model IGAs. Under Model 1, FFIs report to their respective governments
who then relay that information to the IRS. Under Model 2, FFIs report
directly to the IRS to the extent that the account holder consents or
such reporting is otherwise legally permitted, and such direct reporting
is supplemented by information exchange between governments with
respect to non-consenting accounts.
Today’s notice provides guidance to FFIs
entering into agreements directly with the IRS, and to those reporting
through a Model 2 IGA. The notice incorporates updates to certain due
diligence, withholding, and other reporting requirements, and includes a
draft FFI agreement. The draft FFI agreement will be finalized by
December 31, 2013. Treasury and the IRS will continue to provide more
detailed guidance on FATCA implementation as necessary.
The regulations were intentionally
designed to appropriately balance the scope of entities and accounts
subject to FATCA with due diligence requirements, while also phasing in
the related obligations over several years. For example, the final
regulations exempt all preexisting accounts held by individuals with
$50,000 or less from review. For similar accounts with less than
$1,000,000, an FFI is only required to search the account information
that is electronically available. In many cases, FFIs are permitted to
rely on information that they already must collect for local anti-money
laundering and know-your-customer rules.
Many of these cost-saving
simplifications were the result of comments received from affected
financial institutions and foreign governments, which helped us to
tailor the rules to achieve the policy objectives of the statute without
imposing undue burdens or costs.
While withholding requirements begin
next July and the first report of FATCA information is due in 2015, the
IRS FATCA registration website is already open so that FFIs can begin
testing the registration process and entering information.
For the notice and draft FFI agreement, click here.
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