In a notice on the IRS’s website, the Treasury Department and IRS said they understood the “challenges” FATCA presents to foreign banks and other businesses, and that for this reason, the FATCA compliance requirements would be phased in.
“The IRS recognises that implementing FATCA is a major undertaking for financial institutions,” IRS commissioner Doug Shulman said in a statement accompanying the guidance.
“Today’s notice is a reflection of our serious commitment to implementation of the statute, but also a serious commitment to listen to the implementation challenges of affected financial institutions, and make appropriate adjustments to ensure a smoothe and timely roll-out.”
FATCA, Shulman noted, remains "an important development in US efforts to combate offshore noncompliance".
US crackdown
As reported, FATCA was passed in March 2010 as part of American efforts to crack down on the use of offshore accounts by American citizens to evade taxes. The act has been criticised by spokesmen for many major foreign financial institutions, who say it is likely to cause some firms to seek to avoid having any Americans clients at all, and for some investors to shun holding US assets.
European banking and funds industry officials familiar with the legislation – which was contained inside the so-called HIRE Act, a domestic jobs bill – have been eager to obtain greater details of how the US plans to implement FATCA, in order to better assess its likely effects on banks, trusts, wealth managers and fund management organisations.
Delay ‘welcome’, concerns remain
David Treitel, tax director at US Tax & Financial Services, said the extra time being given to foreign financial institutions to comply with FATCA was welcome, but that most of the problems the act presents for such institutions – as well as for Americans with non-US accounts – remain.
“The IRS have said, in essence, that everybody gets an extra bonus year at the beginning, because nobody can develop systems in time, which does suggest that they have been listening [to the industry’s concerns], and that is obviously welcome,” he said.
“It also gives the US government and IRS more time to develop their [own] systems, which they probably didn’t have enough time to do either.
“But it doesn’t get rid of FATCA, which is not a surprise, and it doesn’t get rid of the need for institutions to identify who their American account-holders are.
"It also doesn’t make it any easier in terms of identification of accounts, and it doesn’t make it any easier for the many hundreds of thousands, and possibly millions, of Americans outside the United States who are non-compliant at the moment, because it just delays the time when the American Government will start finding them.”
Treitel is among a number of tax experts with American expatriate clients who have highlighted the plight of so-called "accidental" Americans, who did not know that they were technically considered to be US citizens, and who have been caught in the recent US crackdown on tax evaders with, in some cases, ruinous effects on their finances. It is expected the numbers of such non-compliant Americans are likely to increase significantly once FATCA is in force.
Others who did know they had tax obligations and who dutifully filed tax returns every year are discovering that they nevertheless owe years in back taxes and penalties because they failed to file separate documents known as FBARs, or Foreign Bank and Financial Accounts Reports, such tax experts say.
Key points of Notice 2011-53:
• A foreign financial institution (FFI) must enter an agreement with the IRS by 30 June 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014
•Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on 1 Jan 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on Jan. 1, 2015
•Due diligence requirements for identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014
•For purposes of the notice, "high risk accounts" include private banking accounts with a balance that is equal to or greater than $500,000
