On Wednesday February 8th, 2012, “The Treasury Department and the Internal Revenue Service today issued proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).
Enacted by Congress in 2010, the law targets non-compliance by U.S. taxpayers using foreign accounts.
The regulations lay out a 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.
FATCA strengthens U.S. efforts to combat offshore noncompliance. In doing so, we understand it creates a significant undertaking for financial institutions." said IRS Commissioner Doug Shulman. Today's proposed regulations reflect our commitment to take into account the implementation challenges of affected financial institutions while allowing for a smooth and timely roll-out of the law.
The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.
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 being withheld upon 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,
- Verify its compliance with its obligations pursuant to the agreement, and
- Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.
Registration will take place through an online system which will become available by Jan. 1, 2013. 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.” (Source: IRS website last updated on February 8th, 2012)
Proposed regulations can be viewed at: http://www.irs.gov/pub/newsroom/reg-121647-10.pdf
ComplianceAid, can assist your institution/business with the following:
- Assessing your current U.S. Clientele and document results
- Assessing your current system as they will probably require update/ changes to manage customer information (e.g. enhance AML/KYC procedures and systems)
- Determining who will be the responsible officer in your company
- Training personnel on FATCA
- Ensure proper communication about FATCA to U.S. clients is prepared