The 48-page document, known as the FFI Agreement for Participating FFI and Reporting Model 2 FFI, or Rev. Proc. 2014-13, was unveiled on 26 December. and was described as being little changed from a draft version published in October, apart from some added flexibility given to FFIs that are choosing to comply with the FATCA requirements via so-called "Model 2" intergovernmental agreements with the US.
In conjunction with the US Treasury Department, the IRS also released some key temporary regulations (T.D. 9650) and proposed regulations (REG-140974-11), which cover the way passive foreign investment companies (PFICs) are to be reported. These new regulations are considered to have taken effect on 31 December, as this was the date that they were published in the Federal Register.
Areas covered include how the ownership of a PFIC is to be determined; what the annual filing requirements for PFIC shareholders are; and an exclusion that applies to certain filing requirements which is available to shareholders who “constructively own” – that is, own by virtue of some relationship, such as marriage – interests in certain foreign corporations.
According to an analysis of the new regulations by KPMG, these new PFIC rules are considered to largely adopt portions of regulations that were first proposed in 1992, with certain revisions being made to reflect statutory changes made during the intervening years.
“However, a third release, (also published in the Federal Register on December 31, 2013), withdraws a portion of the 1992 proposed regulations relating to the definitions of the terms 'pedigreed qualified electing fund' and section 1291 fund, shareholder and indirect shareholder,” KPMG said.
It noted that a provision of FATCA added a requirement that a “United States person” who is a shareholder of a PFIC must “file an annual report containing information as may be required by the [Treasury] Secretary”.
Further FATCA regulatory guidance is expected in coming months, tax industry experts said, with two key pieces due this month.
In other news involving the US efforts to crack down on the use of overseas financial institutions by Americans to avoid paying tax, the news website of the Swiss Broadcasting Corporation reported on Tuesday that “at least 60 Swiss banks” have now agreed to sign up for a tax declaration scheme with the US, “allowing them to come clean” about any American tax-dodging clients they might have.
Swissinfo.ch noted that the agreement came “as the end-of-the-year deadline by the United States Department of Justice” was in its final hours.
Under the terms of the Swiss-US tax deal, signed in August, the US authorities asked the 300-plus banks in Switzerland to arrange themselves into four categories, depending on whether they had any tax evaders on their books.
As reported, the dispute between the US Justice Department and Switzerland's banks dates back to 2009, when Switzerland's biggest bank, UBS, admitted to criminal wrong-doing by helping Americans to evade US taxes, and agreed to turn over more than 4,450 client names and pay a $780m fine.
The following year, the President Obama signed into law what was known as the Hiring Incentives to Restore Employment Act of 2010, which is most remembered today for FATCA, buried inside it and barely noticed by most of the world for months. FATCA was designed to crack down on the use by Americans of overseas financial institutions, such as Swiss banks, to avoid their tax obligations by forcing such institutions to report to the IRS on the assets they held on behalf of Americans. As the realisation of the law's scope began to sink in, many institutions have stopped accepting Americans as clients, and a rapidly-growing number of American expats have been renouncing their citizenships.