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Industry Comment
Foreign Account Tax Compliance Act (FATCA)
Tuesday, September 27, 2011
Foreign Account Tax Compliance Act (FATCA) is a US tax law which was enacted on 18 March 2010 as a part of Hiring Incentives to Restore Employment (HIRE) Act.
The primary aim of FATCA is to ensure the Inland Revenue Service (IRS) can identify and collect the tax from US persons holding financial assets outside the US. FATCA requires all non-US Financial Institutions (Foreign Financial Institutions or FFIs) to sign up to an agreement with IRS to provide detailed information on their US Clients or, where the client does not provide sufficient information prove they are not a US taxpayer, withhold 30% US Tax from certain payments to them. If FFIs do not sign up to this agreement, the IRS will subject the FFI themselves to a 30% withholding tax on US source income, disposal proceeds and Pass-thru Payments.
- IRS has issued the following guidance so far on FATCA
- Preliminary Guidance (Notice 2010-60) August 2010
- Supplemental Guidance (Notice 2011-34) April 2011
- Implementation Guidance (Notice 2011-53) July 2011
The law is scheduled to take effect in 2013, but IRS has been hearing concerns and has opted to phase it in over time, with some requirements not commencing in until 2014. Please see the table below for the key dates of FATCA implementation.
| January 1, 2013 | Effective date of FATCA legislation |
|---|---|
| July 1, 2013 | FFI Agreements executed prior to 30 June 2013 will have a 1 July 2013 effective date and will be ensured to have the assigned FFI number published in time to prevent FATCA FFI withholding on 1 January 2014 (unless otherwise elected). |
| January 1, 2014 | FATCA withholding on payments to FFIs and NFFEs begins on Withholdable Payments of FDAP. |
| January 1, 2015 | FATCA withholding on payments to FFIs and NFFEs: Withholdable Payments of FDAP and gross proceeds. Pass-thru Payments will become subject to FATCA withholding not before 1 January 2015. |
It is likely that the new law will generate further pushback as the deadline approaches. A group of expats known as American Citizens Abroad (ACA) wrote a letter on 31 August 2011 to Treasury Secretary and IRS Commissioner calling for the repeal of FATCA (as per Tax Notes International). As per ACA, FATCA is already making it difficult to do business with Foreign Banks and also this could lead to disinvestment in the US by foreigners and that private bankers are already advising clients to clear their portfolios of US securities. Click http://www.aca.ch/taxnote1.pdf to read the letter.
To see what other experts have to say on FATCA, simply click on any of the links below:
- PwC - Summary 2011-53
- PwC - FATCA Implications for asset managers
- E& Y - FATCA - introduction
- E&Y - Impact on asset management
- KPMG - FATCA and Funds industry
- Deloittes - Private Equity Funds - FATCA
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