|Will FATCA Derail Global Economy?|
|by Thomas Long||Tue, Jul 8, 2014, 02:32 AM|
Commentary Series by Thomas Long, Senior Tax Analyst for Thomson Reuters
NEW YORK: “On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010 (Public Law 111-147) added chapter 4 to the Internal Revenue Code----Code Sections 1471 through 1474. These contain the Foreign Account Tax Compliance Act, or FATCA, provisions. Implementation of these provisions has been delayed with the IRS providing a revised timeline for putting into effect the various FATCA requirements, including delaying FATCA withholding until July 1, 2014.
In general, U.S. taxpayers are taxed on a worldwide basis, meaning that they are fully taxable on their income from both within and outside of the U.S. FATCA is intended to better allow the U.S. to keep track of U.S. taxpayers’ foreign accounts and collect taxes owed thereon, and also provide greater transparency in the banking industry worldwide. FATCA requires withholding agents to withhold 30% of certain payments to a foreign financial institution unless it has entered into an agreement with the IRS to, among other things, report certain information with respect to U.S. accounts. The withholding rules are essentially a mechanism to enforce new reporting requirements.
Since its enactment in 2010, FATCA, which goes into effect today, has been long criticized for imposing massive burdens on financial institutions in areas such as recordkeeping and reporting. The new requirements have essentially required many institutions to completely overhaul their systems, and the IRS has continued to release new forms and guidance up until the last minute, adding both complexity and time pressure to an already difficult situation.
To ease the burdens of FATCA implementation and compliance, the U.S. has issued two model intergovernmental agreements to be implemented between the U.S. and other countries. These agreements represent an alternate means to implement FATCA that address difficulties with foreign law laws that may prevent foreign financial institutions from complying with the terms of a FATCA agreement. As the final weeks of June drew to a close, a flurry of jurisdictions reached agreements with the U.S. to cooperate with the FATCA provisions, bringing the total to about 90 counties.
In May, the IRS issued new guidance stating that, for the 2014 and 2015 calendar years, in enforcing FATCA provisions that were modified earlier in 2014, it would consider not only whether a person subject to those provisions actually complied with them but also whether the person made good made efforts to do so. This can be viewed as a concession of sorts that not only are the new FATCA requirements extremely complex, but they have been continuously modified so as to make compliance extremely difficult even for persons who make every effort to do so.”
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