FATCA moves one step closer to implementation

The Foreign Account Tax Compliance Act moved closer to implementation as US tax authorities unveiled a draft agreement form created for foreign financial institutions, including private equity firms, that must enter into a direct relationship with the Internal Revenue Service (IRS).

The IRS and its parent department, US Treasury, released Notice 2013-69 in a joint statement last week. The notice details forms that require non-US firms to directly report any US-owned accounts to the IRS or pay a 30 percent withholding tax on certain US-source payments made to them.

Private equity firms and other financial groups operating in countries that sign a Model 2 intergovernmental agreement (IGA) fall subject to this notice. A Model 1 agreement, which has proven to be the more popular of the two options, allows foreign firms to report tax information on US account holders to local tax authorities who would relay that information on their behalf to the IRS.

The IRS said the draft agreement will be finalized by year end.

So far, nine countries have signed FATCA agreements with the Treasury, a further 16 countries are close to signing and “many more IGA negotiations [are] currently active with other jurisdictions”, the statement said.

“The Agreement and forthcoming guidance have been designed to minimize administrative burdens and related costs for foreign financial institutions and withholding agents,” said deputy assistant secretary for international tax affairs Robert Stack.

While withholding requirements begin next July and the first report of FATCA information is due in 2015, the IRS FATCA registration website is already open so that non-US firms can begin testing the registration process and entering information.

See related coverage to the right for a walk-thru guide on the IRS registration portal.