From today, all financial institutions operating in countries without an Intergovernmental Agreement (IGA) or with a Model 2 IGA should have provided information about their American clients to the US Internal Revenue Service (IRS).
However, while Form 8966, the document used to report US clients’ details, was technically due on 31 March, its instructions provide an automatic 90-day extension available to all entities.
Following the 2014 tax year, such an extension will need to be affirmatively requested.
Financial institutions which have not reported details following the 90-day extension risk exposing their US clients to a 30% tax imposed by American authorities on witholdable payments.
Susan Grbic, partner at accountancy, tax, and advisory services provider WeiserMazars LLP, said FFIs with reporting obligations appear to be prepared for the first round of reporting, which means that for 2014 enumerated payments to certain accounts will not need to be reported.
“The largest obstacle is likely the operation of the new IRS International Data Exchange Services (IDES) system, and this first reporting cycle will prove an interesting test for a system that is essentially brand new.”
IDES has been launched to serve as a single point of delivery for both financial institutions and host country tax authorities to electronically exchange FATCA data with the US, and will allow the US to make reciprocal exchanges as described in IGAs.
“Additional complications may present themselves as, currently, IDES is unable to support the third party preparation of FATCA reports,” added Grbic.
Stephen Nerland, US associate tax attorney at Withersworldwide said many clients from Model 2 jurisdictions will have reservations about handing over their details to the US authorities when approached by their local adviser or bank.
“A lot of clients will not know what they are agreeing to and it may scare them,” he said. “But if you do not give consent the FFI will gather information of who has not complied and pass it to the US through existing exchange agreements.”