The Treasury Department said Friday that due to overwhelming interest from countries around the world, it will extend by six months the start of the withholding and account due diligence requirements of the Foreign Account Tax Compliance Act, or FATCA, until July 1, 2014, to allow more time to complete agreements with foreign jurisdictions.
The six-month delay will also provide foreign financial institutions with the time necessary to comply with FATCA while helping to ensure efficient implementation of the law, according to the Treasury.
It is the second time that the FATCA requirements have been delayed. They were originally set to take effect in 2013, but banks and other financial firms in many foreign countries had complained about the law's onerous requirements, which in some cases conflict with countries' banking secrecy and privacy laws. As a way of dealing with those concerns, the Treasury Department has been negotiating with the governments of other countries on intergovernmental agreements that allow banks and other financial institutions to first send the information to their own governments, which then decide what information to share with U.S. tax authorities.
“Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe, before withholding begins,” said Treasury Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a statement. “The high volume of international participation in this effort represents a quintessential race to the top. Every additional country we bring on board means we are one step closer to winning the fight against offshore tax evasion.”
While the start of withholding and due diligence will be extended to July 1, 2014, the first report of information under FATCA continues to be due in 2015, and will include information about accounts maintained during 2014. The FATCA registration Web site was scheduled to open on July 15, but that date has been pushed back until August 19, which will allow financial institutions more time to begin testing the process and entering information.
Other key FATCA deadlines, including expected timelines for the implementation of withholding on gross proceeds from sales of U.S. securities and pass-through payment withholding, will remain unchanged.
Enacted by Congress in 2010 as part of the HIRE Act, FATCA targets noncompliance by U.S. taxpayers using foreign accounts and establishes a global approach to combatting offshore tax evasion. FATCA requires U.S. financial institutions to withhold a portion of payments made to FFIs who do not agree to identify and report information on U.S. account holders.
To make compliance with the reporting requirements of FATCA feasible, particularly for FFIs in jurisdictions where existing laws prohibit this type of reporting, the Treasury Department has developed intergovernmental agreements that rely on governmental cooperation to facilitate the exchange of FATCA information. This approach not only addresses legal impediments that exist in some foreign countries, but also reduces burdens on financial institutions and streamlines the reporting process.
The Treasury Department asserted that the IGA approach has been praised by the Organization for Economic Cooperation and Development, the G-8, and many others within the global community who are now actively considering making FATCA IGAs the basis for an international standard for the automatic exchange of this type of tax information. The Treasury said that stopping offshore tax evasion is a global issue and the IGAs are a crucial component to FATCA implementation. To date, the Treasury has signed nine IGAs, and is engaged in related conversations with
However, the legality of such agreements has been
A senior Treasury official who requested anonymity was asked by Accounting Today in a conference call with reporters Friday about the legality of the IGAs, but insisted the Treasury is confident that the IGAs are legal extensions of the existing international tax treaties and protocols. According to the official, the Treasury only needs to submit such agreements to the Senate for ratification if they override an existing domestic law. Under the FATCA statute, the Treasury argues, it has discretion to deem financial institutions to be compliant in low-risk circumstances, and the IGAs essentially exercise that discretion. The official said the Treasury already has the authority under its existing tax information agreements in certain circumstances for the U.S. to send information, including sending information on an automatic basis, but it only does that where it has assurance it has pre-existing agreements in place.
The law’s privacy provisions have also been questioned. Sen. Rand Paul, R-Ken., has introduced a bill to repeal the provisions of FATCA that he contends undermine the privacy of U.S. citizens (see
In conjunction with the Treasury Department announcement, the IRS issued
Specifically, the notice provides a six-month extension for when withholding will begin (i.e., payments after June 30, 2014) and for implementing new account opening procedures as well as related requirements to comply with FATCA.
The timeline for foreign financial institutions to register as (among other things) participating foreign financial institutions is also extended under the notice, with the registration portal expected to open on Aug. 19, 2013. Finally, the notice provides that financial institutions operating in jurisdictions that have signed an intergovernmental agreement covering their financial institutions’ compliance with FATCA will be treated as having an effective IGA.
“This is not surprising,” Jim Jatra, who runs the anti-FATCA Web site RepealFATCA.com, wrote to Accounting Today. “Treasury's timetable for getting IGAs signed is far behind schedule. Treasury’s explanation for the delay—‘the groundswell of international interest in FATCA’ —‘is absurd on its face. If there was such a ‘groundswell,’ why would they need another six months to try to push everybody into IGAs? This is just a poor excuse for the fact that there isn’t a groundswell, that on the IGA front they’re behind where they expected to be at the end of 2012. ‘Every additional country we bring on board’—or fail to have brought on board yet—means they have to contemplate trying to enforce FATCA directly, of which Treasury is even more terrified of than the FFIs are. Congressman Bill Posey's July 1 letter to Secretary Lew knocking the legs out from under promises of ‘reciprocal’ information from the US removed what little credibility this policy had. The Department should heed Mr. Posey’s advice to suspend FATCA’s enforcement and negotiation of further IGAs until this misguided law can be overhauled, or better yet, repealed.”
