Finland becomes the latest country to have finalized a tax information exchange agreement with the US under the Foreign Accounts Tax Compliance Act (FATCA).
The law, which goes into effect this July, requires foreign financial institutions, including private equity firms, to report to the Internal Revenue Service (IRS) information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. Failure to comply with the law could result in a 30 percent withholding tax on certain US-connected payments.
Last week, Finland signed a “Model I” type agreement that will see Finnish GPs share information on their US investors with their local tax authority, who will then pass on that information to the IRS. In return, US tax authorities will relay information on US accounts owned by Finnish citizens.
Other countries to have finalized Model I FATCA agreements include the UK, Germany, France, Italy, Spain, the Channel Islands, Cayman, Ireland, Mexico and most recently Chile.
However, some major jurisdictions with active private equity markets have yet to negotiate a FATCA agreement ahead of a July 1 compliance deadline. These countries include: China, South Africa, Brazil, Argentina, South Korea, India, Indonesia, Russia, Turkey, Saudi Arabia and Australia.
GPs in jurisdictions without a signed FATCA agreement will be required to report directly to the IRS and their first report needs to be filed on March 31, 2015. GPs benefitting from a Model I FATCA agreement will not need to file their first report until September 30, 2015.