The U.S. department of the Treasury has released revisions to the proposed Foreign Account Tax Compliance Act that appear to address some of the concerns raised by foreign financial services institutions, including those in Canada, over the anticipated difficulty in implementing the U.S. initiative.
At the same time, the U.S. Treasury also announced it had entered into agreements with the governments of Britain, France, Germany, Italy and Spain to establish an information-exchange protocol as an alternative to implementing FATCA. The U.S. Treasury also has indicated it is in talks with other countries regarding the possibility of establishing more arrangements modelled on those reached with the five European countries.
FATCA is aimed at preventing American taxpayers from failing to disclose their accounts held in financial services institutions outside of the U.S. The legislation is part of a recent, larger initiative by the U.S. government to ensure tax fairness and prevent the loss of tax revenue through the non-disclosure of accounts held offshore.
At press time, Canadian financial services industry policy analysts were still carefully reading through the almost 400 pages of proposed FATCA regulations. Early indications are that the proposed revisions appear to address some of the serious concerns held by foreign firms regarding the initiative.
“It looks like the message got through,” says Andrea Taylor, director with the Toronto-based Investment Industry Association of Canada. “The Treasury seems to have listened to feedback carefully, and it looks like it is trying to minimize the impact that FATCA otherwise could have had.”
The Canadian financial services industry seems to welcome the news of a possible alternative approach to implementing FATCA. “We are pleased that the U.S. Treasury has indicated it is ready and willing to look at alternative paths to achieving the policy objectives of FATCA,” says the Toronto-based Canadian Bankers Association’s statement. “While the proposed framework makes specific reference to some countries, we are hopeful that this approach, or other alternative arrangements, will made available to other countries.”
Canada’s federal government also lauds the development. “We have repeatedly raised serious concerns directly with the U.S. about FATCA on behalf of Canadians and our financial institutions,” says federal Finance Minister Jim Flaherty. “We have been working closely with the U.S. to find a solution, and we are glad [the U.S.] has been receptive to addressing our concerns. This announcement appears to demonstrate an interest in greater joint government collaboration to address such concerns. We will continue to work with our American counterparts toward an approach acceptable to both our countries.”
FATCA, introduced in 2010, requires foreign financial services institutions to come to an agreement by June 2013 with the U.S. Treasury to begin providing the U.S. Internal Revenue Service with the names and other details of all American accountholders who hold more than US$50,000 with a single institution. Some non-financial foreign entities also would be subject to FATCA.
Foreign institutions that choose not to come to such an agreement would be assessed a 30% withholding tax on both U.S.-source income and the gross proceeds from U.S. property sales.
Since the introduction of FATCA, foreign financial services institutions and governments around the world have raised a multitude of concerns with U.S. authorities about the anticipated difficulty of implementing the proposed rules, including the operational cost bur-dens to the foreign financial services institutions to collect and report the information, and because complying with the U.S. regulations would, in some cases, cause firms to be in violation of domestic privacy laws.
In recent weeks and months, the U.S. authorities have been signalling that they might be willing to make changes to FATCA that would address some of those concerns while pressing ahead with their intention to implement the initiative.
The proposed FATCA regulations, as they were released earlier this month, appear to offer foreign financial services institutions relief in many areas of concern, including such things as account identification, reporting requirements and possible exemptions.
The recent incarnation of FATCA also has pushed back some of the dates at which certain parts of the legislation will become effective.
“The IRS and Treasury have made important modifications to their original notices [on FATCA],” says James Carman, senior policy advisor for taxation with the Toronto-based Investment Funds Institute of Canada, “to make it easier for foreign financial services institutions to comply.
“The more types of accounts that they take out of the pool for the FATCA protocol,” he continues, “the [lesser the] degree of likelihood that Canadians who aren’t U.S. persons will be asked [by their financial services firm] for additional documentation.”
The announcement of the intergovernmental arrangement with the five European nations also has been received positively by Canadian financial services industry groups.
Under such a government-to-government protocol, foreign financial services institutions would report to their domestic taxation authority rather than to the IRS directly.
This arrangement would commit both countries on either side of the protocol to exchange information on a reciprocal basis, with the U.S. collecting and reporting on the U.S. accounts held by the tax residents of the foreign country in exchange for information on the accounts held by American taxpayers in foreign financial services institutions of that foreign country.
Says the U.S. Treasury’s press release announcing the agreements: “An intergovernmental approach to FATCA implementation would address legal impediments to compliance, simplify practical implementation and reduce [foreign financial services institutions’] costs.”
Canadian financial services industry groups are reviewing the proposed FATCA legislation and intend to submit their comments to the U.S. Treasury by the April 30 deadline. IE