The US government is about to weed out suspected Foreign Account Tax Compliance Act (FATCA) timewasters as a deadline to sign inter-governmental agreements is fast approaching.
FATCA started in July 2014, and dozens of financial jurisdictions were deemed as complying with the new law even though they had not inked an agreement with the US government.
This ‘deemed compliance’ was agreed until December 31, 2014, providing the financial jurisdiction had indicated a firm intent to sign an inter-government agreement by the deadline.
Banks and financial institutions in countries which have not signed an agreement could face withholding taxes on their US dollar transactions of up to 30%.
Now, the US Internal Revenue Service (IRS) has issued a statement changing the rules.
From January 1, 2015, the list of compliant countries that has not signed an inter-government agreement will be reviewed each month.
“The test is quite simple,” said a spokesman. “Each month we will look at the progress we are making with each government and decide whether we should remove the financial jurisdiction from the FATCA compliant list.”
The Treasury also explained some of the factors that will be part of the review, including:
- Whether the foreign government is responding to communications from the US
- How fast the jurisdiction is working towards signing an agreement
- Whether FATCA regulations have been instigated in the financial jurisdiction
If a country is removed from the list, the foreign financial institutions based there still have to comply with FATCA.
These institutions will have to update or even re-register with the IRS for inclusion on the FATCA database.
“As long as we are happy any country on the list is working towards signing the agreement sooner rather than later, then that’s fine,” said the spokesman.
“But if we suspect delaying tactics, then that’s another matter we will have to consider.”
The FATCA rules require financial institutions outside the USA to report details about accounts and investments controlled by their American customers to the IRS.
For US tax residents, information about accounts with a balance of more than $50,000 are the FATCA trigger, while the threshold is $200,000 for US expats.
Taxpayers have no obligation under FATCA, but the IRS will compare information gathered about their finances from foreign financial institutions with their annual tax returns.
Just over 100 countries have either signed or indicated they will sign FATCA agreements with the US.