US seen bowing to pressure on FATCA
Bowing to pressure from foreign governments, financial institutions and expatriate Americans around the world, the US is seen to be planning to make significant changes to its unpopular FATCA requirements, which are due to take effect in 2013.
The FT and at least one other media organisation which reported the news of the apparent change of direction by the US last night cited remarks made to a New York State Bar Association meeting on Tuesday by acting assistant secretary for Tax Policy, Emily McMahon.
The FT also noted that US officials had held talks with their European Union counterparts in Paris last week on the subject of information sharing.
The final FATCA regulations are expected to be released as early as this week.
If indeed they will be less harsh than previously indicated, the news would be welcomed by non-US banks, trusts, investment houses and other foreign financial institutions (FFIs).
American expatriates, who are finding themselves increasingly shut out of global banking services and investment opportunities and facing increasingly onerous reporting requirements once FATCA takes effect, would also be expected to cheer.
As reported, FATCA was signed into law by President Obama in 2010 as part of an effort to crack down on tax evasion by US citizens through the use of overseas bank accounts and financial institutions.
As the deadline for compliance with the regulations approached, however, the complaints from non-US banks, fund houses, trade associations, financial institutions, Americans unable to find overseas banks that would have them as customers and even government officials from such countries as Canada increased.
In her remarks, which may be read on the US Treasury Department's website, McMahon suggests that the US authorities have begun to take such complaints into account.
Focus on 'higher risk institutions'
McMahon stressed that the US understood that the need to comply with FATCA was burdening many institutions with the need to reconfigure their computer systems and make other time-consuming changes, and vowed that the Treasury would take steps to "further focus the FATCA implementation efforts on higher-risk institutions".
In addition, she said the US had expanded the categories of financial institutions that it “deemed compliant” with FATCA, and noted that this was in addition to a previously-announced exception for retirement plans.
"And in recognition that global financial institutions face a variety of obstacles in bringing all of their affiliates into compliance, the proposed regulations will provide temporary relief from the requirement that all members of an affiliated group be participating or deemed compliant FFIs," she said.
"In order to provide sufficient lead time to develop reporting and withholding systems, the proposed regulations will phase in the FATCA reporting requirements, as well as the rules relating to passthru payments, gradually, over an extended transition period.
" We believe that these proposals will substantially address the many comments we have already received regarding administrative burden, and will do so in a manner consistent with ensuring that the underlying objectives of FATCA are met."
Privacy concerns
Another area being addressed, according to McMahon, is the possibility that FACTA could breach privacy laws in certain countries.
"To that end, Treasury’s international team has already begun conversations with a number of our major trading partners about bilateral approaches to overcome legal impediments and facilitate compliance.
"A key element of these efforts has been to explore the possibility that financial institutions of a particular country could report the information required by FATCA to their home country government, which would then transmit the information to the IRS, in order to overcome legal obstacles to direct reporting."
Context of OECD
As have some other US officials seeking to explain the seemingly hard line taken over FATCA, McMahon sought to place the new reporting framework in context with recent undertakings by members of the Organisation of Economic Cooperation & Development and the EU to work together on eliminating cross-border tax evasion.
"Ultimately, we believe that our efforts to implement FATCA and to resolve the challenges it poses can and should advance the important work already begun by the OECD and the European Union to develop multilateral, global approaches to the exchange of financial account information for tax purposes," she said.
"Although this is clearly a longer-term goal, we would hope that the agreements we hope to reach with other governments on bilateral mechanisms for implementing FATCA can serve as precursors to a more comprehensive multilateral approach to information exchange. For that reason, we believe that FATCA – if implemented appropriately – can serve as a catalyst for further advances in the global effort to improve transparency and combat tax evasion.
We believe that our optimism in this regard is justified in view of the very significant progress that has been made just in the last couple of years on facilitating global exchange of information."