The house of cards built over the years by foreign banks that did not have to report information directly to the IRS is coming down, but is not quite yet demolished. The US Department of the Treasury (Treasury) announced on Friday, July 12, 2013, it will postpone enforcement of the Foreign Account Tax Compliance Act (FATCA), as it effects the reporting by foreign financial institutions (FFIs), by six months. The move is to give foreign entities enough time to develop methods of compliance.
FATCA requires foreign banks, insurance companies, investment funds and certain international business organizations to send the IRS information about U.S. persons' offshore accounts worth more than $50,000. FATCA’s provisions were scheduled to become effective beginning January 1, 2014, and have now been pushed back to July 1, 2014, giving FFIs a six-month reprieve.
The IRS and the Treasury issued Notice 2013-43 providing revised timelines for implementing various provisions under FATCA. The notice also provides additional guidance concerning FFIs in jurisdictions that have signed an intergovernmental agreement (IGA) but have not yet passed legislation to bring those IGAs into effect.
A little background always helps: FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report, directly to the IRS, information about financial accounts held by (1) U.S. taxpayers, or (2) by foreign entities in which U.S. taxpayers hold a substantial ownership interest. FATCA and the proposed regulations therein, provide a step-by-step process for U.S. account identification, information reporting, and withholding requirements for FFIs, other foreign entities, and U.S. withholding agents. FATCA also requires certain FFIs to enter into an agreement with the IRS. As an alternative, Treasury officials, last year, began negotiations with foreign governments to help implement FATCA worldwide. Currently, United States has finalized agreements for FATCA compliance with Germany, Spain, Norway, Switzerland, Ireland, Mexico, Denmark and the United Kingdom. And, even with the six-month delay in place, the U.S. is actively engaging more countries.
The extension of the FATCA implementation timeline, provides the (1) IRS more time to issue the necessary forms, guidance, clarification, and interpretation, (2) Treasury more time to finalize dozens of more IGAs currently in negotiation, and (3) business entities around the world more time to implement changes required by FATCA / IGA.
Additionally, the delay gives the US more time to finalize agreements with several more countries, effectively casting the FACTA net much wider across the globe. U.S. investors with assets in other countries should gain a keen understanding of which global jurisdictions are home to their investments. Speak to your financial advisor and tax consultant to put a plan of action in place to be prepared well before July 1, 2014.
The Tax Warriors at Drucker & Scaccetti are highly skilled in this area. Our suite of international tax services and our membership in Geneva Group International, one of the most respected global professional service affiliations in the world, make us uniquely qualified to help you and/or your business with compliance around this new law.
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