U.S. persons living abroad may be your first guess as the biggest naysayers about FATCA. They may be vocal and feel caught in the crosshairs of the U.S. war on undisclosed foreign accounts and income. But the larger and more potent voice is from foreign financial institutions and even their governments.
In another big move toward implementing the FATCA law, the U.S. Treasury Department has spelled out the different ways in which foreign countries and foreign financial institutions can comply with the rules that will be touched on later. Although FATCA was enacted in 2010, efforts to implement the law are ongoing. 2013 is going to be a big year for FATCA.
FATCA requires Americans to disclose a certain level of overseas holdings directly to the IRS. More controversially, it requires foreign financial institutions to tell the IRS about offshore accounts controlled by Americans if assets top $50,000. Foreign institutions have understandably been struggling to meet FATCA’s demands while also maintaining the privacy of its clients and upholding the bank secrecy laws in those countries.
Nonetheless, FATCA requires it and the IRS will start penalizing foreign banks in 2014 for failing to comply. Even before then, the pressure is on to get the institutions and their governments to work out solutions. The Treasury Department has announced tentative compliance agreements with Switzerland and Japan. Meanwhile the Treasury is well into negotiating with France, Germany, Italy, Spain and Britain to set up arrangements for government-to-government information sharing.
The Treasury Department has offered two ways to structure agreements.
One is reciprocal information-sharing between national tax collection agencies. That’s only for countries operating under an existing income tax treaty or tax information exchange agreement with the U.S.
It’s unclear if every single country with a treaty could qualify. There were some suggestions the U.S. would agree only if there are “robust” protections in place that the information remains confidential and is used only for tax purposes.
The second type of agreement is one-way information missives. Financial institutions in countries that lack any U.S. agreement will have to report American account holders directly to the IRS. That is more controversial as it involves foreign institutions forking over information directly rather than dealing with their own local regulators who in turn would then deal with the IRS.
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