The US Treasury and the Internal Revenue Service have announced plans to delay reporting requirements to comply with the Foreign Account Tax Compliance Act until 2014.
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.
Under the new timetable FFIs have to enter an agreement with the IRS by June 30, 2013 to ensure they are registered in time.
The withholding tax will be levied on US source dividends and interest from January 1, 2014. The tax will be fully phased in, including on gross proceeds, on January 1, 2015.
FFIs will have to start identifying new and pre-existing US accounts, including certain high risk accounts, in 2013. High risk accounts are defined as private banking accounts with $500,000 or more.
Reporting requirements will begin in 2014.
IRS commissioner Doug Shulman says: “Fatca is an important development in US efforts to combat offshore non-compliance.
“This notice is a reflection of our serious commitment to implementation of the statute, but also a serious commitment to listen to the implementation challenges of affected financial institutions and make appropriate adjustments to ensure a smooth and timely roll-out.”
Wealth management firm London & Capital director Tony McLoughlin says: “Despite this reprieve, many companies, particularly larger organisations, will still struggle to develop systems, processes and procedures to comply with the requirements in the next two years.
“Clearly the most immediate impact will be to a company’s bottom line. Smaller organisations will be able to adapt systems far more quickly and at a much lower cost in relative terms, and as a result, are likely to benefit from picking up more US linked business.”
McLoughlin adds that lobbying on Fatca is likely to continue until the IRS finalises rules towards the end of year. He believes that further guidelines are to come.