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Relief, as US delays FATCA deadline by 6 months

From Tax & Regulation Jul 15 2013 BY: Helen Burggraf , Contributing Editor , International Adviser

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The US has given non-US financial institutions around the world another six months to prepare to comply fully with FATCA, pushing the deadline back to 1 July, 2014.

Friday's statement by the Internal Revenue Service announcing the extension represents the second postponement of the final compliance date, and was widely seen as a measure of the difficulties the US Treasury Department is having in putting in place the structures needed to enforce the ambitious legislation.

In Friday's statement, however, the IRS said it was responding to comments from "both US withholding agents and FFIs [foreign financial institutions]".

"In addition, while comments from FFIs overwhelmingly supported the development of IGAs [intergovernmental agreements] as a solution to the legal conflicts that might otherwise impede compliance with FATCA, and as a more effective and efficient way to implement cross-border tax information reporting, some comments noted that, in the short term, continued uncertainty about whether an IGA will be in effect in a particular jurisdiction hinders the ability of FFIs and withholding agents to complete due diligence and other implementation procedures," the IRS said, in its 13-page notice.

In consideration of these comments, as well as to "alllow for a more orderly implementation of FATCA", it went on, the decision was taken to postpone by six months the date by which institutions would be obliged to begin FATCA compliance withholding.

"Corresponding adjustments to various other time frames" have also been made, the IRS document said. For example, a "FATCA registration website", intended to "serve as the primary way for FFIs to interact with the IRS to complete the required registration, agreements, and certifications", had been intended to go live today, but now is projected to be accessible on 19 August.

The IRS also said it is planning to publish a list of jurisdictions that will effectively be treated as if they had an intergovernmental agreement, or IGA, with the United States for FATCA purposes, even if such an agreement had not yet come into force by next July 1, in order that financial institutions in these places would be able to go ahead with their FATCA registrations.

David Treitel, a London-based American tax specialist with American Tax Returns Ltd, said that although the most recent postponement of the final FATCA deadline would give advisers with expat American clients more time to prepare, they needed to be "vigilant" even now to ensure that their clients' investments and financial products "are truly suitable from a US tax perspective".

"This includes spending the extra time up to July 2014 identifying all [their] clients who are US citizens, residents or green card holders,” he added.

'Cost benefit analysis lacking'

Geoff Cook, chief executive of Jersey Finance, reacted to the US government’s official press announcement of the latest FATCA postponement with apparent astonishment.

In a comment piece first published on the Jersey Finance website, which may be viewed in full by clicking here, he observed: “Tax administrations are sometimes accused of mounting 'fishing expeditions', but the IRS seems to have 'gone fishing', with the announcement of yet a further delay in the live launch date of US FATCA, this time for a further six months…the full text of the announcement…is truly remarkable.”

Cook said he was particularly intrigued by the US Treasury's statement that the delay was said to be "due to overwhelming interest abroad", noting that "even American citizens must see the irony in [that] statement. The US is imposing extra territorial information exchange on the rest of the world, which means other countries are incurring significant costs through putting in place information capture and transfer systems. Collectively across the world this is likely to run into billions of dollars in systems and implementation costs.

"Just to be clear, I have no issue with fighting tax evasion, cheating on taxes means the rest who are honest have to carry a heavier burden; fair taxes and a commitment to paying them are halllmarks of civilisation and a matter of civic duty.

“...[But] whenever spending taxpayers cash, there has to be some eye to cost benefit. If you spend as much or more than you are getting back, it isn't a wise use of resources. Where is the cost benefit analysis on US FATCA? I think the answer is one hasn't been done, or if it has, it hasn't been made public.

“Other countries are bearing the weight of US tax administration, with no clear idea at all as to the overall cost benefit, other than they absorb the costs, and the US gains the benefit.”

Crackdown on American tax evaders

As reported, FATCA was signed into law in 2010 by President Obama as part of an effort to crack down on American taxpayers who make use of non-US accounts in order to evade paying US taxes on their non-US income.

It was introduced by lawmakers in the wake of several events that shone a spotlight on the existence and scale of such accounts, including a case brought against Swiss bank UBS by the US for its role in enabling US clients to avoid their tax obligations. As part of a settlement in 2009, UBS was forced to pay a fine and release the names of some 4,500 clients to the US authorities.

FATCA was initially criticised forthe burden it places on foreign financial institutions to collect the data on behalf of the US authorities. Recently, however, a growing number of countries have been considering implementing "FATCAs" of their own.

In April, Europe's five largest countries announced that they were planning to begin sharing tax information with one another under a scheme that they said had been modelled on FATCA.

In a statement,  HM Revenue & Customs said the five – the UK, France, Germany, Italy and Spain – had agreed to draw up a new "multi-lateral tax information exchange agreement" similar, in particular, to a model IGA the five had agreed to last year for complying with the US law's requirements.

But will the US reciprocate...

Ironically, the expectation of other countries that the US will provide their tax authorities with data on their citizens' US accounts, the way that they have agreed to provide the US authorities with such information under the IGAs, has begun to attract the attention of some American congressmen, such as Florida Republican Rep Bill Posey.

Posey, a member of the House Financial Services Committee, and others say that they are concerned about the burden such a reciprocal information-gathering requirement would place on American financial institutions.

Posey's concerns received considerable publicity earlier this month after he reportedly sent a letter expressing his doubts on the matter to the US Treasury Secretary Jack Lew.

To read the IRS's Revisted Timeline and Other Guidance Regarding the Implementation of FATCA, click here.  To read the official US Treasury press release on the postponement of the FATCA deadlines, click here.

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TAGS: fatca, hmrc, irs

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