US Department of the Treasury News Release
Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion
1/17/2013
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.
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Norway is a FATCA member of the coalition of the willing. Done deal.
(the shooter) Anders Breivik’s mother was said to have helped him by having a bank account in USA outside of reporting. They’ve gone in under the premise that USA is going to give them data about their resident’s money in USA.
Now, those Democrats Abroad in Norway will find out that they are getting it from both ends—Norway will want to know about their Fidelity accounts so that they can get taxed on both interest and wealth tax.
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I would like to tell anyone who says that FATCA is a ‘good idea’:
FATCA is a witch hunt, and like during any witch hunt, many innocent people will die (bona fide witches of course having magic are able to avoid detection and therefore death).
The Salem Witch Trials (another proud event in American history due to repeat itself), only ended when spectral evidence was no longer admissible in court. Spectral evidence is evidence brought about by dreams and visions, similar to those who envision all USP’s abroad as tax evaders and tax cheats.
@bubblebustin, the progressive left hate the McCarthy witch-hunt too. The question, “Are you or have you ever been a member of the communist party?” is exactly like, “Are you or have you ever been a US person?”
“Are you a witch?” “No, then prove it.”
Proving something in the negative is also nigh on impossible.
The United States is a joke, a farce and a laughing stock. It is hardly more credible than the poor medieval peasants in the following sketch:
https://www.youtube.com/watch?v=yp_l5ntikaU
Here are the unpublished FATCA “Final Regulations”, according to LexisNexis:
To access “Final Regulations”, go to:
http://www.lexisnexis.com/community/taxlaw/blogs/taxlawblog/archive/2013/01/18/final-fatca-regulations-issued-1-17-2013.aspx
Then click on embedded link ” TD 9610 Final Regulations” in first sentence of first paragraph.
This works for me!
@Petros, and as I commented then:
“The absence of evidence is not evidence of absence”.
Now go and do at least 5 years of taxes and 3 years of FBAR’s to prove your innocence, but be aware that through your submission we find evidence of anything other that innocence we may drown you in paperwork!
@Innocente
Linkie no workie for me.
@ bubblebustin: Fixed with workaround in original post. Thanks!
Interesting emphasis on this site:
http://offshorewatch.blogspot.ca/2013/01/irs-issues-final-fatca-regulations.html
Friday, 18 January 2013
‘IRS issues “final” FATCA regulations amongst growing unease over IGAs’
Nicola Palios
………..”The IGAs….. proving to be very controversial. I….clear that they do not lessen the information gathering and reporting burden on the FFIs……on one construction, they make the compliance burden considerably worse for US financial institutions, not better, as many of the agreements contain bi-lateral obligations requiring the US FFIs to share information on accounts held for citizens of the counter-party country. ………
Others are far more sceptical that the bi-lateral element of the IGAs is anything more than window-dressing, and do not believe that the US will ever deliver what they are demanding of others, citing in support the fact that Article 6 states that:
1. Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom “”by pursuing the adoption of regulations and advocating and supporting relevant legislation”” to achieve such equivalent levels of reciprocal automatic exchange.”
So, in essence, the reciprocal element will happen if and when Congress decides to enact it (and bear in mind there will be a lot of lobbying against it from the US financial institutions who would bear the brunt of the burden).”……….
KPMG CH blogged on the FATCA “Final Regulations” today with a list of observations:
http://blog.kpmg.ch/financial-services/fatca-final-regulations-surprises/
@Badger- the U.S. Congress will never enact reciprocal legislation. Why would they when they already have what the wanted? The other countries should have made their participation contingent upon the U.S. enacting the same legislation at home. Once the other countries have agreed to do this and gone to the trouble of building their FATCA infrastructure the U.S. knows that they won’t undo any of it.
Also the U.S. can now rest assured that fear of U.S. reprisals is more real to them than their belief in themselves. Any country that signs onto FATCA is a fool and has not given any thought as to the bigger political picture where they have become subservient to U.S. tax law.
Why would any none U.S. legislature make itself to over 500 pgs. of U.S. tax stupidity? This capitualtion to the U.S. is exactly the wrong thing for any of them to do. They will gain nothing and in the end they will look like fools.
@badger
A lot there that some astute Brockers have been writing about for quite some time.
@recalcitrantexpat
“Why would any none U.S. legislature make itself to over 500 pgs. of U.S. tax stupidity? This capitualtion to the U.S. is exactly the wrong thing for any of them to do. They will gain nothing and in the end they will look like fools.”
Like allowing your ship to be towed by the Titanic.
@recalcitrantexpat:
Today’s Swiss NZZ has an article on “FATCA Final Regulations” which briefly discussed reciprocity as follows: “Certain countries, such as Germany, are asking the Americans for reciprocity, i.e., they wish to receive information about their citizens (residents) in American banks. For this reason, the US put a regulation in place at the start of the year which obliges American banks to report interest payments for foreign customers to the IRS.”
Comments:
1) I searched on “FATCA” on the German “Handelsblatt” newspaper today and it has not been mentioned in this most important German business newspaper since June 2012. If Germany is going forward with FATCA, it is under wraps or possibly of no interest to this newspaper (unlikely).
2) Although generally Germans are keen on privacy, the Social Democrats (SPD) and the “Prussian” Steinbrück want to collect every last Euro in tax revenues under the “transparent citizen” concept.
3) As an opinion, if Germany does not get reciprocity in an IGA, it won’t sign.
4) Has the IRS/ Treasury or a bank regulator issued guidelines requiring that foreign customers be identified and interest amounts reported to the IRS?
– If yes, this might indicate that reciprocity is forthcoming.
– Of course, if reciprocity is negotiated in IGAs, then IGAs look more like treaties, which the IRS probably doesn’t have the authority to negotiate.
“A withholding agent may also treat the individual as a foreign person, notwithstanding the U.S. place of birth and any other U.S. indicia described in paragraph (e)(4)(ii) of this section, if the withholding agent obtains a non-U.S. passport or other government-issued identification that is evidence of citizenship in a country other than the United States and either a copy of the individual’s Certificate of Loss of Nationality of the United States, or a reasonable written explanation of the account holder’s renunciation of U.S. citizenship or the reason the account holder did not obtain U.S. citizenship at birth.”
Interesting to speculate on that last bit, “a reasonable written explanation of the account holder’s renunciation…” What is “reasonable” and who determines that?
I don’t have the patience to slog through 500 pages of turgidity in a document that doesn’t apply to me or my wife (yea CLNs!!!), but I didn’t see anything in my skimming that says the FFI withholding agent has to file any of this documentation to the IRS. My reading (I may be wrong though) is the FFI has to keep the documentation on file locally and have it available to show an IRS auditor if there is ever an audit of the FFI’s compliance with FATCA. If this is true, let’s further contemplate the odds that the IRS is going audit a) every FFI on the planet, b) a random sample of every FFI on the planet, or c) a random sample of Canadian or Swiss or name-your-target FFIs, given staff and budget constraints and a semi-sane benefit-cost analysis on doing an audit. (I used to work with some federal auditors in Canada; no auditor launches an audit without a reasonable expectation that the cost of the audit will be justified by a likely benefit or a probable risk from not auditing, and keeps his/her job very long.) So if your local withholding agent buys your “reasonable written explanation” why you aren’t a US person and files it without checking with the IRS, what are the odds this is going to be a problem for you?
Maybe I missed something in the regs; if so, someone please correct me on this.
@Innocente
Regarding:
Answer Yes, and with much controversy. I just documented the history of it yesterday on this thread.
Specifically IRS bulletion 2012-20. Start with the summary
Check out the free live webcast of the symposium on Tax Advice for the Second Obama Administration beginning at 8:45 a.m. PST. And follow live tweets using the #ObamaTaxAdvice hashtag via @SoCalTaxProf, @PeppLawReview, and @TaxAnalysts. Questions for speakers can be tweeted to @PeppLawReview.
I certainly have < $1,000,000 in an account and even then most is in retirement plans. Smartly, I casually inquired a year ago of my Credit Union what my citizenship was. They responded. “You are Canadian.” End of story.
https://twitter.com/FATCA_Fallout/status/292326114016243712
https://twitter.com/FATCA_Fallout/status/292327966858420226
@my immediately preceding post; I would have editedit but my edit rights had expired when I thought of this, hence this comment:
To add something I mentioned at the Sandbox, that issue of “reasonable written explanation” for a renunciation is especially pertinent, IMO, to anyone out there who became a Canadian citizen when Canada was still requiring an oath of renunciation of previous nationality and has obtained a copy of the oath you signed through an Access to iInformation request from Citizenship and Immigration Canada (cost is $5). A written statement explaining the significance of that oath and the circumstances at the time and what it meant to your intentions at the time, sure as heck would convince me you’re not a US person any more, if I were a Canadian-born, Canadian-citizen FFI withholding officer. I wouldn’t presume to push that issue, I’d accept your statement and file it away with no further reference. But that’s me …
New subtitle for Final FATCA regulations: Provided by Patric Write it in a way the bureaucrats will understand!
As the final regs are being studied, I found this interesting article which dates back to 2010, and provides us a chance to look back and see that though rare, some of the ‘unintended’ consequences of FATCA were already identified, along with observations about it’s deliberately stealthy process:
From News Mar 19 2010 BY: Helen Burggraf
, Contributing Editor
, International Adviser
See http://www.international-adviser.com/news/obama-signs-bill-with-hidden-provisions-affecting-
“Obama signs bill with hidden provisions affecting non-US financial institutions;
President Obama yesterday signed into law a bill which
contains little-publicised elements that are expected to impact non-US
financial institutions, funds and collective investment structures.”
………..”Financial services industry observers also say the act will add to
growing list of reasons non-US banks and other financial institutions
may wish to avoid taking on or even keeping American clients. Already
Americans are reporting difficulty in finding banks or financial
services companies that are willing to have them as customers.”……
……..”The act primarily focuses on the creation of jobs through tax
incentives. However, it contains numerous revenue-raising provisions
that focus not only on US individuals who invest outside America, but
also those investing in it, Withersworldwide noted. “………..
…….”Other aspects of the act will increase the US tax burdens of some non-US persons, Withersworldwide noted…”
“Arguably, certain of these provisions could be considered
inconsistent with the US government’s previously stated goal of making
the US capital markets attractive to non-US investors,” it said.”…
…”“This may be quite cumbersome to administer. I think the effect will be
further to reduce the willingness of institutions outside the US to
have US clients and also possibly to make direct investment into the US
somewhat less attractive,”..”
I guess we’ll see whether anyone in the US twigs to what may end up as a downside for the US. We who know what is happening, certainly are not going to hold any US investments or property, and as the > 1,000,000 other duals and affected Canadian citizens and residents here start to realize what is happening, will they hang on to US investments if they can divest themselves of any US source funds which could be subject to withholding?
I disagree with the argument that FATCA wasn’t known. Perhaps it wasn’t known to a few, but it Went on as a bill in itself for a long time, until a vote was taken to merge it into the HIRE act. There are GAO studies published for Congress which explained that this was a great source of Revenue. All bills have had to have funding—to be sold as Revenue neutral (I don’t know where that started to kick in). If they knew about the spending, they knew about the funding.
@JustMe: Thanks for alerting me to IRS bulletin 2012-20 – I wasn’t aware that the IRS had issued rules on identification of foreign resident holders of bank accounts.
@Innocente…
Yes, they have been laying the ground work for that for sometime in preparation for these IGAs. This was not just a last minute thought. It was a strategy from the beginning of FATCA, I think. and the first being reporting I saw on it was back in September of 2011 but it obviously predates that. . Just hard to get anyone (especially the media) to notice what these FATCAnatics are up to.. They have had a plan, and you have to give them credit, they are working it hard!
mvh