The 544-page document, which may be viewed by clicking here, is amed at giving non US financial institutions the information they need to make the final preparations for collecting data on their American account holders.
Neal Wolin, deputy US Treasury secretary, said in a statement released with the final FATCA regulations that they marked a "critical milestone in international cooperation on these issues", while also providing the Obama Administration with "a powerful set of tools to combat offshore tax evasion effectively and efficiently".
The Foreign Account Tax Compliance Act, or FATCA, was enacted by Congress in 2010, and was designed to crack down on American taxpayers who make use of foreign accounts to avoid their US tax obligations.
The document released last night does not directly affect UK financial insitutions, as these are to be covered by an intergovernmental agreement between the US and Britain, whereby UK institutions will forward the data on their American clients sought by the IRS to UK authorities, who in turn will forward it to the US. A number of other countries have agreed similar IGAs, and others are said to be in discussions aimed at doing so as well.
However, the final version of the regulations helps to clarify the way the IGAs are to be implemented, and the time under which these regulations are to be phased in.
Jennifer Sponzilli, a US tax partner for KPMG based in London, noted that the Fatca final regulations "generally align the definition of an investment entity as a financial institution with that in the IGAs", as well as providing a "centralised reportion option" for fund managers – both of which the investment management industry will welcome.
"There is still no further clarity, however, with regard to whether the umbrella fund or each sub fund must register under the final regulations," she added.
According to Sponzilli, the final FATCA regulations make clear that the registration (or foreign financial institution (FFI) Agreement execution, as appropriate) must be completed for all FFIs, within and without IGA counties, by 25 October 2013, in order for an FFI to be included in the IRS’s list of participating or registered deemed compliant FFIs by December 2013.
FFIs not included in the December 2013 list may not be able to avoid withholding on 1 January 2014 for new accounts or contracts, she added. (Under FATCA, FFIs that fail to disclose information to the IRS on any American clients they had would face a 30% withholding tax on US-source income.)
The bottom line, Sponzilli said, is that financial institutions have their work cut out for them now.
"While the Fatca final regulations bring much needed certainty to global financial institutions, the implementation time frame remains challenging with the first effective date less than a year away."
Backlash
Since the full extent of FATCA’s reporting requirements began to be realised by the world’s major non-US financial services companies, it has been the source of considerable controversy and pushback. At a hearing held in Washington last May, spokesmen for such companies as Bank of New York Mellon and organisations like the World Council of Credit Unions told IRS officials about the raft of difficulties FATCA represented. Many banks and other businesses have simply closed out the accounts of their American clients rather than even attempt to set up the processes necessary to comply.
Reacting to this backlash, the US announced in October that it would delay the starting dates of key parts of FATCA for those non-US financial institutions in countries not covered by an intergovernmental agreement with the US.
This meant that for most institutions, the starting date is now January 2014, rather than 2013. The announcement brought the FATCA reporting timings of companies located in countries that have not entered into an IGA with the US into line with companies located in such countries as the United Kingdom, Mexico, Denmark, Ireland, Switzerland, Spain, and – as of Thursday – Norway, which have.
Another 50-plus countries and jurisdictions are said to be considering FATA IGAs, the US Treasury said in November.
‘Welcome elements’
Jorge Morley-Smith, head of tax of the Investment Management Association, which represents UK fund managers, said that it was too early to speak with a deep understanding of what the final FATCA regulations will mean, but that “on the face of it, it contains some really welcome elements”. These, he said, included a new concept of “sponsored reporting”, which will essentially enable fund managers to comply more easily than was the case in previous FATCA drafts.
