FATCA Compliance Update: U.S. Treasury Announces Six Month Delay In Implementing FATCA
On July 12, 2013, the U.S. Treasury announced that due to overwhelming concern from countries around the world, the implementation of FATCA (the Foreign Account Tax Compliance Act) would be deferred from January 1, 2014 to June 30, 2014.
IRS Notice 2013-43, available here, provides that this additional time is necessary to 1) revise timelines for implementation of FATCA, and 2) develop additional guidance concerning the treatment of foreign financial institutions (FFI) in countries which have either signed an Inter-Governmental Agreement (IGA) with the United States or which the United States will treat as if they had.
The IRS has not yet established its on-line registration portal which would allow participating FFIs to begin the process of registering submitting the information by FATCA. The registration portal is now expected to be open on August 19, 2013. In order to ensure that a FFI would be included on the IRS FFI list, the FFI would need to finalize their registration by April 25, 2014.
To date, only 10 IGAs have been signed although discussions have been ongoing with dozens of countries. Consequently, FATCA compliance may differ significantly depending on where the FFI is located, and more specifically whether the FFI is in a country with an IGA. There will also be differences if the IGA is a form of a Model 1 IGA or Model 2 IGA and whether the IGA has provisions requiring U.S. reciprocity in reporting U.S. financial institution information.
Although the IRS has issued a draft form of IRS Form W-8BEN-E (an eight page form containing 20 different types of FATCA categories reflecting the enormous complexity of FATCA), it is expected that the IRS will finalize the W-8BEN-E sometime in the fall of 2013. It is also expected that the IRS will finalize guidance so that affected taxpayers will be able to confidently prepare and file it.
There is a significant amount of ongoing controversy surrounding the IGAs and the potential for having the United States committed to reciprocity. The Treasury Department in its IGA negotiations had promised that the information reporting through an IGA or by the account holders directly would work as a two-way street, and not surprisingly, some foreign governments will only sign where the U.S. provides “equivalent levels of reciprocal automatic exchange” with foreign “FATCA partners.” However, Treasury has acknowledged that it does not have the statutory power to make any such promise of reciprocity and has requested that Congress provide it with such power so as to overcome what could be a fatal flaw in FATCA.
If Congress grants such statutory authority to the Treasury, the consequences may be that every financial institution in the United States would become a FFI to the other IGA countries. The U.S. financial institutions would then have to go through the same registration process and information reporting on their customers that the FFIs from IGA countries must deal with now.
Will Congress pass the necessary legislation?
At this point, there are opponents in the House of Representatives where the tax bills originate. Congressman Bill Posey (R-Florida, 8th) a key member of the House Financial Services Committee, has written a letter to Jack Lew, Secretary of the Treasury, sharply turning down any thought of imposing FATCA on U.S. financial institutions. A copy of Congressman Posey’s letter is available here. As Congressman Posey stated, “…it is difficult to conceive of any circumstance that would justify imposing such an expensive and counterproductive domestic mandate.”
In addition to getting approval from the House Financial Services Committee, an approval would be needed from the House Ways and Means Committee.
Without the IGAs being widely accepted among the financial centers of the world, FATCA could prove to be effectively unenforceable.
Fuerst Ittleman David & Joseph will continue to monitor IRS’s implementation of FATCA, as well as any and all further developments in Congress. For more information, please feel free to contact us via email at email@example.com or by phone at (305) 350-5690.