US Delays Key Start Dates For Controversial FATCA Act

26 Oct 2012

The US tax authorities have delayed key dates in the staggered implementation of the Foreign Account Tax Compliance Act, according to Reuters.

Institutions will now have until January 1, 2017 – an additional two years – to begin withholding US tax from clients’ investment gains, according to the report.

The IRS did not give a reason for the delay in its announcement, but told the news service that it is continuing to work with affected parties, governments and financial institutions on the implementation of FATCA.

A spokesperson also said final regulations are set to be issued soon.

The legislation, enacted in 2010, is designed to force foreign financial institutions outside the US to set up processes showing any US clients, such as expats, are accounted for. FFIs that do not comply must pay a 30 per cent withholding tax. The legislation has already prompted some financial institutions into no longer serving expat US citizens.
“It seems almost certain that the delays are a result of the IGA (intergovernmental approach) negotiations that have dominated the FATCA discussion of late,” said Colin Camp, managing director of products and strategy at Dion Global.

“The specific delay on the withholding tax piece was not a real surprise as this is one area that is being closely examined in the IGAs, particularly with regard to the question of overseas banks withholding tax on recalcitrant clients – or in other words, becoming the IRS’s tax collectors,” he added.

The US Treasury is working with a number of countries on an intergovernmental framework to address legal issues under the Act and to simplify its implementation, having published two versions of a model intergovernmental agreement earlier this year.

The UK became the first country to sign an agreement with the US on implementation in September, a step that was welcomed by the UK financial services industry, the law firm Withers told Family Wealth Report. The treaty, which still needs to be enacted by parliament, aims to curb compliance costs and address the fears of financial institutions worried that imposing the FATCA Act rules will drive up regulatory burdens.

The Treasury has pending agreements with France, Germany, Italy, Spain, Switzerland and Japan, and is cooperating with at least 40 other countries on FATCA agreements, Reuters reported, citing comments from tax lawyers”