FATCA: US Treasury updates proposals to ease burden

The US Treasury today issued updated proposals designed to fight offshore tax evasion.

It said some foreign countries could comply with the Foreign Account Tax Compliance Act (FATCA) regulations by collecting required financial data and forwarding it to US authorities.

Under its original proposals, financial institutions, not their governments, were tasked with collecting and reporting the data.

Allowing for governments, rather than financial institutions, to report the information takes advantage of long-standing procedures and relationships between financial institutions and their home countries, lowering the compliance burden, the US Treasury said.

Julie Patterson, director of authorised funds and tax at the IMA, said: "We welcome today's joint statement by the governments of six major countries, which commits them to exploring a common approach to FATCA implementation.

"The approach envisages firms reporting to their domestic authorities and governments sharing that information. In practice, this would mean that UK firms and funds would not have to sign up to an agreement with the IRS, reducing many of the industry's legal concerns with the original proposals.

"On initial review the draft regulations take into account the IMA's lobbying by providing a special exemption for regulated investment funds where the distributors of the fund comply with certain criteria. We have yet to work through the technical details of this exemption, but we welcome this positive development.

"On the other hand, it is not clear whether the draft wording provides the exemption we are seeking for pension funds."

FATCA requires new disclosures to the US Internal Revenue Service about where offshore accounts are held by US clients.

 It will force individual investors in funds holding any US assets to prove they are not US citizens or face a 30% witholding tax on US-sourced returns.

Those affected by the rules include private and investment banks, broker-dealers; insurers; mutual and hedge funds; limited liability companies and partnerships; plus other intermediaries and withholding agents.

The rules, which are expected to be rolled out next year, have attracted sharp criticism from banks and other financial groups worldwide over costs and legal issues.

Under the Treasury's latest move to implement FATCA, it said the nations of France, Germany, Italy, Spain and the UK will be allowed to collect information on financial accounts covered under FATCA and forward that information to the US.

"These regulations implement FATCA in a way that is targeted and efficient," said acting assistant US Secretary for tax policy, Emily McMahon.

In the UK, HM Treasury and the Investment Management Association (IMA) have both been pressuring the US to consider exemptions to the stringent rules, whether through a local exemption or a carve-out for low-risk institutions.

A Treasury source said last month the difficulties in implementing FATCA are considerable, as the legislation goes further than anything the UK has had to deal with before.

Originally set to come into force in January 2013, certain aspects of FATCA have been postponed until 2014 and 2015, while the witholding tax on pass-through payments has been delayed until 2017.