Foreign financial institutions and governments might initially have groaned when the U.S. Congress passed the Foreign Account Tax Compliance Act in March 2010, but it looks like at least some of them are starting to come around. In February, the U.S. Treasury announced it had partnered with five European nations — France, Germany, Italy, Spain and the U.K. — to put in place an intergovernmental framework for implementing the new law.
Under FATCA, Internal Revenue Code Section 6038D requires U.S. taxpayers with foreign accounts and assets of more than $50,000 in aggregate value to report them. The countries’ participation is a significant step, in that a big reason FATCA has been so controversial is that it relies on foreign financial institutions (FFIs) to identify qualifying accounts and their owners to U.S. authorities.
On the same day the partnership was announced, the Treasury and the IRS released about 400 pages of proposed regulations governing FATCA. Some of the new regulations are aimed at reducing the burden on FFIs. For instance, the proposed regulations allow foreign banks to rely on data they already collect to comply with anti-money laundering rules.
Some of the other highlights from the announcement include:
- More grandfathering in complying with the law, as the proposed regulations exclude any payments under an obligation outstanding on January 1, 2013 from the definition of withholdable payment and passthru payment.
- A two year transition for full implementation to give countries time to address national prohibitions on information sharing that would run afoul of FATCA’s reporting requirements.
- Exclusion of most debt and equity securities issued by banks and brokerage firms from the reporting requirements, leaving the focus primarily on traditional bank, brokerage, money market accounts and interests in investment vehicles.
- Limiting manual review of paper records related to pre-existing individual accounts to those exceeding $1 million, excluding accounts of $50,000 or less.