The IRS has delayed some Foreign Account Tax Compliance Act (FATCA) implementation deadlines, as banks battle over the sweeping US tax law.
In response to foreign banks and government’s lobbying against the US tax law FATCA, the Internal Revenue Service (IRS) and the US Treasury Department have issued new guidance further delaying a number of the act’s implementation deadlines.
The announcement extends a number of important due-diligence, withholding, and reporting deadlines.
Withers LLP partner, Jay Rubinstein, said foreign banks have been expressing criticism toward the "complicated regime" and have been preparing for a few years already.
"It is a big endeavour, and the bigger the bank, the bigger the challenge", he said.
‘Too few extensions’
Rubinstein, who has been coordinating Withers’ FATCA work, said although "the IRS announcement brought much needed deadline extensions, they were too few."
He also added that banks were racking up significant costs as they were "trying hard" to keep up with the deadlines: if banks do not comply with FATCA, they will face a 30% withholding tax on payments to the institution from the US.
These extended deadlines are expected to be incorporated in the final regulations when issued later this year.
The act, which has caused concern among US citizens overseas, was enacted in 2011 and its extraterritorial legislation comes into force in 2013.
Part of US efforts to improve tax compliance involving foreign financial assets and offshore accounts, FATCA will force foreign financial institutions to report their American clients to the IRS.
Banks will have to identify and report directly to the IRS information about financial accounts, held by US taxpayers with accounts of more than $50,000, or held by foreign entities in which US taxpayers hold a substantial ownership interest.