IRS extends FATCA deadlines
The United States Internal Revenue Service (IRS) has announced new timelines that extend the dates for withholding agents and foreign financial institutions (FFIs) to complete due diligence and other requirements under the Foreign Account Tax Compliance Act (FATCA). This has come about as a result of concerns expressed by FFIs about the practical implementation of the legislation by the given timetable.
FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, at FFIs (including banks, investment funds and insurance companies), foreign trusts and foreign corporations. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
The UK Government signed an agreement with the US in September 2012 to improve international tax compliance and implement FATCA.
Under the current timeline, an FFI must enter an agreement with the IRS to provide information on each account and US account holder by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow it to refrain from withholding, which would otherwise begin on January 1, 2014.
It had been indicated that withholding agents would have to have new account opening procedures in place by January 1, 2013. Institutions with US clients would be required to report basic account details for 2013 and 2014 by January 1, 2015, and the withholdable income of those clients would then need to be reported from January 1, 2016, with respect to calendar year 2015.
FFIs across the world have all expressed concern about the legislation, particularly the changes to their systems it will entail, and the penalties that will ensue in case of non-compliance. The US Treasury and the IRS have also disclosed that they have received numerous comments identifying certain practical issues in implementing the FATCA rules within the time frames prescribed.
As a consequence, the IRS is now stipulating that withholding agents, including participating FFIs and registered-deemed compliant FFIs, will be required to implement new account opening procedures one year later than envisaged - by January 1, 2014.
In addition, the final FATCA regulations will provide that a participating FFI will be required to file the information reports with respect to the 2013 and 2014 calendar years not later than March 31, 2015, while the withholdable payments of clients will now need to be reported from January 1, 2016, with respect to calendar year 2015.
Further information on the changes to the timetable is available from the IRS website.
Published 26 October 2012
SOURCE: CCH Online