The US Treasury Department, through the IRS, is making it easier for financial institutions in foreign countries to comply with registration requirements under the Foreign Account Tax Compliance Act (FATCA). With the compliance deadline coming up on July 1, the timing couldn't be better.
Now the Treasury and IRS have announced that they will treat 19 countries as having agreed in principle to FATCA, at least through the end of 2014. They are also granting foreign banks in these countries an extra ten days to meet the registration deadline (IRS Announcement 2014-17). The details of the delay are available in a recent Thomson Reuters article.
A major purpose of FATCA, which was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, is to uncover assets held in foreign banks and other offshore accounts by US taxpayers. These locations are often touted as "safe havens" from US taxing authorities. To promote compliance with US tax law, FATCA requires foreign financial institutions to report information about accounts held by US taxpayers directly to the IRS, even if the accounts hold only foreign assets.
Similarly, these institutions must report information on accounts held by foreign entities in which US taxpayers have a substantial ownership interest. If a bank refuses to disclose the information, it can be assessed a 30 percent withholding tax on certain US source payments, whether or not the recipient is a US taxpayer.
The law has triggered complaints in many countries that claim it violates privacy and banking secrecy laws. Havens such as Switzerland and the Cayman Islands have long-been identified as places where US citizens can stash funds without any fear of retribution.
To improve compliance within the global community, the Treasury has been negotiating intergovernmental agreements (IGAs) with dozens of jurisdictions. Thus far, however, only 26 have formalized agreements, with the deadline fast approaching. The latest announcement means that preferential treatment will be afforded to jurisdictions that reach agreements in substance before July 1 as long as they consent to having the status of their agreements disclosed. (More on these agreements can be found at the FATCA resource center.)
Basically, this announcement gives the financial institutions located in these countries an extra ten days to the upcoming registration deadlines. The IRS says it can provide this extra time based on the performance of its registration system to date.
Currently, 19 more countries will be treated as having signed IGAs, effectively bringing the total of foreign jurisdictions in the fold to 45 (see sidebar). What's more, the IRS expects the list to expand in the coming weeks as more countries jump on the bandwagon.
"With 45 countries now considered to have IGAs in effect, and more jurisdictions far along in the process, the robust international support behind FATCA is undeniable", said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a prepared statement. "Today's announcement both adds to our global effort against tax evasion and provides crucial clarity for financial institutions as they prepare to comply with FATCA starting on July 1."
Prior to the announcement, foreign institutions were required to register by April 25 to be included on the initial list. But now institutions will be added if they submit a complete registration form by May 5.
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.