Topic: Foreign Accounts
To encourage taxpayer compliance with foreign account reporting requirements, the Treasury Department and the IRS have focused primarily on individuals by threatening harsh penalties, fines, and the possibility of jail time. However, by enacting the Foreign Account Tax Compliance Act (FATCA) back in 2010, Congress sought to involve the foreign financial institutions (FFIs) themselves. With deadlines approaching, the FFIs find themselves scrambling to come into compliance or risk exclusion from U.S. markets.
To comply with FATCA a FFI will have to enter into a special agreement with the IRS to become a “participating FFI” and thereafter implement procedures to achieve the Acts principal obligations. These obligations include:
However, for every institution looking to comply with FATCA, there is an estimated $100 million dollar compliance cost. In the face of such concerns U.S. tax authorities announced recently a delay in the implementation deadlines. Now, institutions will have until January 1, 2014, to have procedures in place to meet FATCA reporting requirements. That gives them as much as a year to comply. Additionally, institutions will have until January 1, 2017 to begin withholding U.S. tax from clients’ investment gains.
The IRS did not give a reason for the delay but “the relief, while expected, is very much welcomed,” said Laurie Hatten-Boyd, principal at the accounting firm KPMG LLP. Up to now, only the United Kingdom has finalized a FATCA pact, pending approval by parliament. France, Germany, Italy, Spain, Switzerland and Japan have pending agreements and the Treasury is negotiating with at least 40 other countries for FATCA agreements. In light of the latest extension, any further delays seem unlikely.