The United States has reached an agreement
with France, Germany, Italy, Spain and the United Kingdom to
simplify the collection of tax information for Foreign Account Tax
Compliance Act (FATCA).

One of the key parts of the agreement is to
allow foreign financial institutions (FFIs) established in the five
European countries to comply with FATCA reporting obligations by
reporting information to the authorities in that country rather
than directly to the Internal Revenue Service (IRS).

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There has been widespread resistance to FATCA
by the banking industry outside the US due to the legal impediments
to compliance and onerous practical implementation FFIs were
facing.

Importantly, Switzerland has not been included
in the agreement.

 

FATCA proposal released

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The agreement comes at the same time as the US
Treasury and the IRS have released their 388-page proposal
outlining a more detailed plan of how FATCA will be
implemented.

The proposal lays out a step-by-step process
for US account identification, information reporting, and
withholding requirements for FFIs, other foreign entities, and US
withholding agents.

The proposed regulations extend the scope of
the information reporting regime that FFIs have to observe in
US.

 

Public consultation open till 30
April

Under the proposed regulations, FFIs will have
to enter into an agreement with the IRS to:

  • Identify US accounts,
  • Report certain information to the IRS regarding US
    accounts,
  • Verify its compliance with its obligations pursuant to the
    agreement, and
  • Ensure that a 30% tax on certain payments of U.S. source income
    is withheld when paid to non-participating FFIs and account holders
    who are unwilling to provide the required information.

FACTA was enacted by US Congress in 2010 and
was expected to be in force by 2013, until a one-year delay was
announced last year.

The public consultation period on the FATCA
proposals closes on 30 April.