Russia is putting pressure on the United States to sign a Foreign Account Tax Compliance Act (FATCA) treaty – but is finding the going tough due to the crisis in The Ukraine.
The Russian government had indicated earlier this year that the treaty would be signed, but that was before the annexation of The Crimea.
Now, the US is playing hard to get and deliberately slowing the negotiations and freezing Russia out of FATCA.
That means all Russia’s banks must sign up to make individual agreements to provide tax information about bank accounts and investments held by US taxpayers or face a 30% withholding tax on all their transactions passing through the dollar system.
Around 50 other countries have already agreed treaties with the US that allow their banks to report via their tax authorities and in return, they receive reciprocal information about accounts and investments held by their taxpayers in the US.
Silent sanction over Crimea
Russian finance minister Anton Siluanov held talks with US Treasury Secretary Jack Lew in Washington last week, but failed to make any progress towards signing the treaty despite announcing Russia was ready to fully comply with FATCA and was pushing the necessary legislation through parliament.
He has even offered to order banks to close the accounts of US taxpayers failing to comply with FATCA.
“Reaching an agreement over FATCA is in the interests the US and Russia,” said the minister. “I came here to negotiate a settlement but the US is stalling and making FATCA a silent sanction because of what has happened in The Crimea.”
Falling outside of FATCA makes Russian banks difficult to partner for the other FATCA nations and costs them far more in compliance costs.
Kuwait and Panama join FATCA network
Meanwhile, Kuwait and Panama are the two latest nations to indicate that they will sign up to FATCA and will go on the ‘white list’ of nations.
However, banks in Taiwan are concerned that a lack of progress on FATCA talks could also cost them dear.
Taiwan has already held five rounds of FATCA talks with the US with no agreement.
If a treaty is not signed soon, the banks will have to report on US customers directly.
FATCA is due to start on July 1, 2014, and requires any foreign financial institution to report the details of any US controlled bank accounts or investments to a combined value of $50,000 to the Internal Revenue Service (IRS).