Lenient FATCA has kick started

Added 9th March 2015

FATCA, the US's controversial piece of US tax legislation, has marked the first step towards global transparency and has provided cooperating jurisdictions with plenty of leniency, a US-based tax expert has said.

Lenient FATCA has kick started

Susan Grbic, a New York-based partner at tax services provider WeiserMazars, said that while the Foreign Account Tax Compliance Act has at times been “intrusive” and “time consuming”, it has broken new ground in the way tax information is exchanged across international borders.

“The whole world talks about cross-border tax evasion but it is the US which has made the first step towards defeating it using transparency,” she said. “It has forced those doing business with the US to be transparent, and has set a model across the world.”

Passed in 2010 by US president Barack Obama, FATCA is part of the US Hiring Incentives to Restore Employment Act and aims to ensure that US persons, wherever they are located and in whatever investment vehicle they hold their assets, are paying the correct amount of US tax.

Last July saw the introduction of the act’s withholding stage, which means that all foreign financial institutions (FFIs) now have to disclose US related information about new and existing clients to the US Internal Revenue Service (IRS).


Grbric said the US has been sympathetic to Foreign Financial Institutions (FFIs) by extending deadlines and providing guidelines to those who are struggling to meet its requirements.

“It is important for these institutions to have procedures in place to comply with FATCA. Even if they are not perfect, it shows that the institution is taking the potential ramifications of non-compliance seriously,” she added. “The industry has been given more time and the system is lenient.”

Her comments come before the reporting deadline for FFIs operating in countries with a model 2 intergovernmental agreement (IGA) or no IGA at all at the end of March.

FFIs who have not reported the relevant information about US clients by this point put their clients at risk of facing a 30% tax imposed by US authorities on withholdable payments.

An IGA makes it easier for partner countries to comply with the provisions under FATCA and includes advantages such as relaxed deadlines and increased clarity and simplicity around due diligence with country specific provisions.

A model 2 IGA requires a country’s FFIs to register directly with the IRS, while a model 1 agreement tasks the country’s government with collecting information from resident FFIs. The reporting deadline for model 1 IGAs will be this September.


Grbic said countries which do not have an IGA have felt disconnected from the global market because of the restrictions it imposes on their international business.

“The US said there will never be an IGA with Russia and they have been scrambling to get one so it is globally connected as other places,” she said. “Even China and India signed on, the whole world is interconnected.

“It is almost impossible to avoid America entirely. Whether it is through clients who are US citizens or through assets which are sourced from US investments, most FFIs are inherently obliged to FATCA’s demands.”

WeiserMazars provides accounting, tax, and advisory services through its team of over 100 partners and approximately 650 professionals from nine offices across the US, Israel and the Cayman Islands.

It is part of the Mazars Group, an international accounting, audit, tax and advisory services organisation with over 14,000 professionals in more than 70 countries.

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