Groundwork for the US Foreign Account Tax Compliance Act (FATCA) is pressing on with another release of updated rules and guidelines for banks and financial institutions.
Table of contents
As activity ramps up for the start of FATCA on July 1, the Internal Revenue Service (IRS) published a stack of revisions and new regulations for financial institutions to follow.
They included technical notes on how US banks and financial organisations will withhold tax on payments due for offshore financial institutions that fail to comply with reporting financial information about accounts and investments controlled by US taxpayers.
The ‘final’ FATCA rules were published in January, but while the US Treasury continues to negotiate tax information sharing agreement with other governments, changes to the treaties are leading to regular updates relating to how FATCA will actually work.
The latest package of amendments covers more than 50 updates to the last set of ‘final’ rules.
The big shift in policy is a change of focus for overseas trusts and companies controlled by US taxpayers who now have to report financial information directly to the IRS, moving the responsibility away from offshore banks and financial institutions.
Many of the updates are housekeeping, adjusting foreign income reporting laws in existence before FATCA in line with the new law and removing any duplicate provisions.
“The changes are designed to make customer reporting easier and more direct in response to negotiations we have had with financial institutions,” said an IRS spokesman.
“These should be the final substantial changes before FATCA starts, although some more minor tweaks may be needed along the way.
“No further delays are expected for the implementation of FATCA and we’ve pulled all the stops out to make sure the July 1 deadline is well and truly met.”
Reporting offshore income
FATCA was passed with the support of President Barak Obama in 2010 with the aim of encouraging US taxpayers with earnings from overseas bank accounts and investments to report their income on tax returns.
The law demands foreign financial institutions with American customers report their financial information to the IRS. FATCA is a carrot-and-stick law that threatens fines and withholding penalties on financial institutions that do not comply with the rules.
Around 750,000 banks, funds and financial firms worldwide are busy signing up to FATCA via the IRS online portal to register as FATCA agents by July 1.
Many governments have also pledged to swap tax and financial information with the US as part of FATCA.
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