US set to tone down Fatca requirements

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.