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US set to tone down Fatca requirements

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The US is set to rethink its rules over the Foreign Account Tax Compliance Act after concerns were raised that forcing overseas institutions to report details of their US clients directly to the Internal Revenue Service may breach privacy laws.

In its latest set of regulations, the IRS is set to narrow the focus of Fatca on to larger accounts and bring the procedures required to identify US clients in to line with those already being followed by financial institutions with regards to money laundering rules.

Banks have called for the new Fatca rules to be addressed, claiming they could cost billions of dollars to implement.

Fatca requires any foreign financial institution to sign an agreement that they will provide the IRS with information on any US taxpayers they deal with. A 30 per cent penalty withholding tax will be levied on the gross proceeds of any US assets for non-compliance.

According to the FT, official talks were held by the US with European counterparts in Paris last week over the scope for bilateral agreements, under these rules European banks would transfer data on US citizens to national authorities  which would then pass them on to Washington.

The rules for Fatca were introduced on the back of a waive of evasion scandals between 2008 and 2009. In July 2011, the US Treasury and the IRS announced plans to delay reporting requirements to comply with the Foreign Account Tax Compliance Act by 12 months.

The rules were due to be introduced in January 2013. But a notice issued by the Treasury and the IRS set out a phased timetable for firms to comply with the rules.

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Readers' comments (5)

  • "In its latest set of regulations, the IRS is set to narrow the focus of Fatca on to larger accounts and bring the procedures required to identify US clients in to line with those already being followed..."

    Not even close to good enough.

    FATCA is bad law. It tries to solve a US domestic tax issue with a law that is imposed in an imperialist and extra-territorial way by the US on every other country on the face of the planet. It will be destructive for everyone, US included.

    Since the US refuses to repeal it, the right approach for the UK and other countries is to simply refuse and have nothing whatsoever to do with it. Taiwan, China and a handful of other countries have already stated that they will not comply. The UK and the EU must do the same.

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  • Worldwide tax evasion is a real problem, one which the wealthy are using to a large extent with offshore accounts in places where secrecy has allowed them to hide many millions if not billions of pounds and dollars.

    You must not forget that tax evasion costs everybody money and although I fully support tax planning – I do not support blatant tax evasion.

    The Western countries will not pay down the deficits unless they crack down on tax evasion after all this is the price of living in their society.

    We need to see the implementation of worldwide tax agreements as it will be within 20 years in China and Taiwan and other Eastern nations start to experience the same problem as they start to improve the social welfare of their nation's.

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  • The cost of tax evasion over the loss of good will abroad, the ability for expats/American corporations to work and compete in an increasingly global world, and the chilling effect on foreign investment at a time when the US has major debt problems will far outweigh the revenue brought in by FATCA.

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  • We will see over the next few years but I like many feel it's unfair billionaires and indeed some millionaires get away with paying very little tax because they place money in an account offshore that is bound by secrecy rules. Tax evasion plain and simple.

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  • Existing anti-evasion procedures ought to be sufficient. The IRS's mentality is that "there's no such thing as too much regulation."

    I am a US citizen in Canada who has tried to scrupulously follow IRS rules as well as those of Canada. Each April is "paperwork hell." I deal with an accountant specializing in US citizens in Canada, who will be charging me over $1000/year despite minimal investment activity on my part.

    The regulatory requirements have mushroomed to the point of absurdity, where even good-faith efforts to obey the law become inadequate. FATCA essentially criminalizes every US citizen who lives overseas.

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