US Department of the Treasury News Release
Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion
NOTE: This document is scheduled to be published in the Federal Register on 01/28/2013 and available online at http://federalregister.gov/a/2013-01025, and on FDsys.gov
Treasury Advances Efforts to Secure International Participation, Streamline Compliance, and Prepare for Implementation of the Foreign Account Tax Compliance Act
WASHINGTON – The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today issued comprehensive final regulations implementing the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion.
These regulations provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.
“These regulations give the Administration a powerful set of tools to combat offshore tax evasion effectively and efficiently,” said Deputy Secretary Neal Wolin. “The final rules mark a critical milestone in international cooperation on these issues, and they provide important clarity for foreign and U.S. financial institutions.”
The final regulations issued today:
- Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.
- Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.
- Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.
- Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations: (1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds; (2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and (3) clarify the types of passive investment entities that must be identified and reported by financial institutions.
- Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.
Progress on International Coordination, Including Model Intergovernmental Agreements
Since the proposed regulations were published on February 15, 2012, Treasury has collaborated with foreign governments to develop two alternative model intergovernmental agreements that facilitate the effective and efficient implementation of FATCA.
These models serve as the basis for concluding bilateral agreements with interested jurisdictions and help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA’s policy objectives, and further reduces burdens on FFIs located in partner jurisdictions. Seven countries have already signed or initialed these agreements.
Today, Treasury announced for the first time that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.
Additional Background on the Model Agreements
On July 26, 2012, Treasury published its first model intergovernmental agreement (Model 1 IGA). Instead of reporting to the IRS directly, FFIs in jurisdictions that have signed Model 1 IGAs report the information about U.S. accounts required by FACTA to their respective governments who then exchange this information with the IRS.
Treasury also developed a second model intergovernmental agreement (Model 2 IGA) published on November 14, 2012. A partner jurisdiction signing an agreement based on the Model 2 IGA agrees to direct its FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS.
These agreements do not offer an exemption from FATCA for any jurisdiction but instead offer a framework for information sharing pursuant to existing bilateral income tax treaties. Under both models, all financial institutions in a partner jurisdiction that are not otherwise excepted or exempt must report the information about U.S. accounts required by FATCA. Therefore, the IRS receives the same quality and quantity of information about U.S. accounts from FFIs in jurisdictions with IGAs as it receives from FFIs applying the final regulations elsewhere, but these agreements help streamline reporting and remove legal impediments to compliance.
Background on FATCA
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to avoid withholding under FATCA, a participating FFI will have to enter into an agreement with the IRS to:
- Identify U.S. accounts,
- Report certain information to the IRS regarding U.S. accounts, and
- Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information.
Registration will take place through an online system. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.
Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page at Treasury.gov or IRS.gov.
Just another perspective on these “long awaited” and “welcome” regulations… yea, right!
A few more links related to this announcement.
IRS issues final FATCA rules, marking dawn of global hunt for financial criminals
US Issues Final FATCA Regulations
US releases final FATCA rules
FATCA outcome remains unclear
Final FATCA regulations announced but full impact for Australian financial institutions remains uncertain
A Very Comprehensive one! Key highlights of FATCA final regulations
‘Tis a Gift to Be Simple: The IRS Issues Final FATCA Regulations
The eighteenth century Shaker hymn from which we quote for the title of our article on the final FATCA regulations strikes us as the perfect metaphor for addressing the 544 pages of FATCA due diligence, reporting and withholding regulations promulgated by the Internal Revenue Service (IRS) on January 17, 2013.
Ann Lee, the charismatic Shaker preacher, founded her faith on simplicity, community and celibacy. While the last tenant may be at least partially responsible for the difficulty that Shakers have encountered in passing down their faith – at last count only three individuals identified themselves as Shakers
_the first two precepts have parallels to the approach taken by the IRS in providing final FATCA regulations. Specifically, in the preamble to the final regulations, the IRS states that its mission was to “simplify and clarify the chapter 4 [FATCA] regulations.”3
The IRS, by enlisting virtually every financial institution on earth to police U.S. tax avoidance, has truly sought to create a global community for a righteous purpose. We’ve given up hope that FATCA will share the fate of the early nineteen century Shaker communities and figured we’d better read the regulations and endeavor to provide our friends and readers with a useful overview.
and here is some more…
IRS Releases Final FATCA Regulations
Clifford Chance reports on inconsistencies and concerns around FATCA
Long-Awaited Final Rules on Foreign Account Tax Compliance Act Issued by Bloomberg BNA
Malta: Let the Compliance Begin.
From the FCC, here is their read on the FINAL FATCA FATWA
To read, put the title into google news.
With Final FATCA Rules Released, It’s Now Or Never
Last week the Treasury Department finally released the oft delayed final rules for the Foreign Account Tax Compliance Act. The 544 pages of rules seem to offer little in the way of surprises, but they do confirm that FATCA remains âthe worst law most Americans have never heard of,â as recently dubbed by James Jatras. Itâs time for more Americans to hear about FATCA and the damage it is preparing to do â if not already doing â to the world economy.
Media Gets FATCA Wrong
The media and industry response to the rules has been predictably sycophantic and short-sighted. The typical media report starts by asserting that FATCA was created to âcrack down on tax evasion,â cites the entirely made up âestimateâ that there is $100 billion in uncollected taxes from evasion, and then fails to note the obvious disconnect between the lawâs estimated revenue collection of less than $1 billion per year, which is not even 1% of the money the law supposedly was designed to target. So either the estimated tax evasion figure is vastly overstating the problem, in which case the law should not exist, or FATCA utterly fails at its job, in which case the law should not exist.
Real Reason Is To Grow Government
Though there is another possible explanation we should consider, and itâs that the purpose of FATCA might not be to crack down on tax evasion at all. Based on what the law actually does, the purpose may well simply be to expand the power and scope of government.
Furthermore, another reason to suspect that FATCA is not actually designed to crack down on tax evasion is that it does nothing to target actual tax evaders. It targets everyone living, working and investing overseas, rather than simply those individuals and accounts that pose a real risk of engaging in tax evasion.
Tax Lawyers Offering Bad, Self-Serving Advice
While the media coverage has been bad, the response from industry has arguably been worse. Tax lawyers have completely sold out their clients, soliciting untold sums to comply with an unjustifiable and unconscionable law, all the while pretending that thereâs nothing at all that can be done about it.
Given the extensive costs associated with bringing institutions into compliance â estimated at upwards of $100 million for larger organizations â investing even a tiny sum in comparison in the hopes of developing more sane tax policies and undoing FATCA ought to be a no-brainer. Yet few have shown the courage so far to speak out against US fiscal imperialism, much less muster significant resources to engage in opposition.
Time To Fight Is Now
All-in against FATCA
The impact once FATCA is implemented will be unquestionably bad. Billions of dollars will be diverted away from productive activities in order to pay accountants and lawyers to comply with a law that promises according to the governmentâs own estimates to raise less than a dayâs worth of spending at present levels even after ten years of collection. The law will also drive investment out of the US economy, while turning Americans living abroad into toxic assets.
But as bad as FATCA itself will be, I worry even more about what comes next. Since FATCA doesnât come close to capturing the $100 billion in supposed loses to tax evasion each year, whatâs to stop them from trying again with an even more onerous law? And if the motivation is actually just to expand the scope of government, there are no limits to politiciansâ greed for power. If we allow FATCA to go forward instead of drawing a line in the sand, the next battle will be over an even more destructive law, and weâll be fighting from an even weaker position. Itâs truly now or never.
@ Just Me
Mr. Quinlan’s article is excellent. The last paragraph is something I certainly had not considered. They could create a FATCA II which is even more onerous — not just for more power but to prove they can get those big number returns that FATCA I will not produce.
All-in against FATCA!
Ready for FATCA? More then 50% of respondents say no…
The text of the final Foreign Account Tax Compliance Act (FATCA) regulations in an easy to read format
APEC Business Travel Card, FATCA, Tax Reform (Territorial Approach): APCAC Advocacy Update, Jan 26, 2013
Fatca Regulations ‘Push’ Bahamas In Gov’T Deal Heading
Nassau Government reviews final regulations for FATCA
Foreign Account Tax Compliance Act (“FATCA”) – Final Regulations
Authors: Dina Kapur Sanna, Stephen Ziobrowski
Publisher: Day Pitney Alert
Specifically, under the Final Regulations:
Note: The global GATCA number for the future is a GIIN Is there a tonic to go with it? New opportunities for fraud!
Model proliferation a key challenge to Fatca implementation, says State Street
FATCA Regulations Have Arrived – A First Impression
“The due date for the first information reporting by participating FFIs with respect to the 2013 and 2014 calendar years is modified to March 31, 2015.”
I’m not going to try to understand all the new “improved” FATCA regs but that one caught my eye. So FFIs would hand over their rat reports to the IRS either via their country’s revenue service or directly (depending on their particular IGA) for the years 2013 and 2014 in March 2015 (plus from that time forward obviously). Does that mean that those who would be ratted out are more or less locked into whatever configuration their accounts are in right at this moment, beginning January 1, 2013? Whatever happened to that Sept. 2014 date? The target seems to move around and yet even for FFIs which haven’t done the full rat conversion to their accounting systems and won’t be able to do that for many months to come, the data would have to be compiled for years in which their data was collected in a different form. Gads this is a mess!
I don’t think the IRS listened very seriously at all to the FFIs whose input they pretended to seek, let alone individual FATCA FATWA victims. It is outrageous that Canadian A with no US connection would only see a T5 heading to the CRA from their bank but Canadian B with perhaps only the slightest US connection sees a T5 plus a bank report with a detailed inventory of assets heading to the CRA and that report then gets passed along to the IRS — every year. There is no justice in that — not one bit! I know the IRS is upgrading its computers but I hope they develop a short circuit trying to handle all that information when it arrives (hopefully in one big bolus of ones and zeroes) in 2015.
Comparison of the Final FATCA Fatwa Rules
Duke of Devon and Any Others,
What is your opinion on the RDSP, given what Finance Minister James Flaherty has replied to me and my comments in UPPERCASE below?
Regarding possible exception of the Canadian Registered Disability Savings Plan (RDSP) for FATCA — will it be exempt or will it not?
(2) Exceptions. A financial account does not include an account described in this paragraph (b)(2).
(i) Certain savings accounts–(A) Retirement and pension accounts. A retirement or pension account that satisfies the following conditions under the laws of the jurisdiction where the account is maintained:
(1) The account is subject to regulation as a personal retirement account or is part of a registered or regulated retirement or pension plan for the provision of retirement or pension benefits (including disability or death benefits); (PER FINANCE MINISTER FLAHERTY’S REPLY TO ME, THE RDSP IS NOT CONSIDERED A RETIREMENT ACCOUNT (AND IS NOT ADDRESSED IN THE CANADA/US TAX TREATY – AS IT CAN BE USED FOR OTHER REASONS FOR A DISABLED PERSON — SO IS THE RDSP GOING TO BE EXEMPT OR IS IT NOT GOING TO MEET THE DEFINITION? I’D SAY, PROBABLY NOT.)
(2) The account is tax-favored (as described in paragraph (b)(2)(i)(E) of this section); (MEETS THIS DEFINITION)
(3) Annual information reporting is required to the relevant tax authorities with respect to the account; (MEETS THIS DEFINITION)
(4) Withdrawals are conditioned on reaching a specified retirement age, disability, or death, or penalties apply to withdrawals made before such specified events; (MEETS THIS DEFINITION)
(i) Annual contributions are limited to $50,000 or less, (MEETS THIS DEFINITION)
(ii) There is a maximum lifetime contribution limit to the account of $1,000,000 or less. (MEETS THIS DEFINITION)
*Calgary411. Please please tell me you are asking on behalf of others.
As far as you personally are concerned, this is not an issue.
@Duke of Devon,
I agree it doesn’t look like an issue for me from the Canada side of the border / my bank. I have a CLN. My son was born in Canada, never registered with the US — he is, in my mind, Canadian, and they won’t ask.
Yes, I am asking for others / in general. There are, I think, lots out there who will be affected.
(My son’s RDSP is clearly identified on my FBARs and 3520 and 3520A as I am the Holder of that account — but that is the other side of the border.)
*Glad we are clear on that. For a second I was concerned that you might be backsliding.
If Canada signs an IGA, RRSPs, RESPs, TFSAs , and RDSPs will be exempt from reporting.
Duke, don’t let me backslide — it isn’t in my plan.
OK, I get it now — it is within the 544 pages of the Regulations that the RDSP meets MOST of the definition (although proceeds from the RDSP are not limited to use for medical benefits; it can be used for housing for the disabled person):
(B) Non-retirement savings accounts. An account (other than an insurance or annuity contract) that satisfies the following conditions under the laws of the jurisdiction where the account is maintained: CHECK
(1) The account is subject to regulation as a savings vehicle for purposes other than for retirement; CHECK
(2) The account is tax-favored (as described in paragraph (b)(2)(i)(E) of this section); CHECK
(3) Withdrawals are conditioned on meeting specific criteria related to the purpose of the savings account (for example, the provision of educational or medical benefits), or penalties apply to withdrawals made before such criteria are met; MOSTLY CHECK
(4) Annual contributions are limited to $50,000 or less; CHECK
Based on this, for which I thank the Canadian government and Finance Minister Flahterty as it is likely they played some part in this and other registered savings accounts being exempted and stated in the announced FATCA Regulations — and for much more, Canada must not sign an IGA with the US.
*Just wanted everyone to see this
There is a new article about Canada IGA talks and Elizabeth May on IPolitics.CA. It is paywalled(I subscribe) but I want everyone to see the following quotes.
“I continue to hold (Finance Minister Jim) Flaherty to his commitment to protect Canadians from the extra-territorial application of U.S. law,” May wrote in an email to iPolitics about the Foreign Account Tax Compliance Act. “FATCA is moving fast down a track that violates our rights as Canadian citizens.”
Despite the minister’s strong words, Canada and the rest of the world have little option but to sign the agreement and limit their exposure to financial punishment by the United States, said David Brown, director of the tax consulting company Navigant in Toronto. The IRS rules, released Jan 17, state that institutions and individuals who don’t provide the necessary banking information will be taxed 30 per cent on US payments. Countries who sign the agreements have less onerous terms, with the 30 per cent tax applied sparingly.
But the US “can’t show favouritism,” he said. “The IRS has had to cast a very broad global net to capture everything and everyone.”
Brown said Canada’s agreement will look nearly identical to existing ones in the UK that require arduous information searches that net personal details of US taxpayers. Taxpayers can be US citizens, Green Card holders, and permanent residents. According to Statistics Canada, there were nearly 300,000 U.S. citizens living in Canada in 2006.
Abby Deskman from the Canadian Civil Liberties Association called the scope of personal information scheduled to be handed to U.S. authorities “quite alarming,” adding that the range of people who could fall under suspicion is vast.
In a response to iPolitics, a ministry official declined to comment on the progress of negotiations but said the deal could be wrapped “in the near future.”
“The Government of Canada will continue to advocate on behalf of Canadians and Canadian financial institutions on such issues with the U.S,” the official said in an email. “As noted, we continue to work with our U.S. counterparts to develop an approach that both countries will find agreeable, with a view towards concluding an agreement in the near future.”
These are just individual quotes I cut out. Article is available below to subscribers. That is where we stand right now for those who are interested.
Indian Tech Firm Launches New FATCA Service
Now the Indian tech firms join the fatca gold rush…
How do the final FATCA regulations impact insurers?
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