Concessions yielded in latest FATCA proposals

In the ongoing effort to crackdown on offshore tax evasion, US Treasury released a more satiable set of proposals implementing the Foreign Account Tax Compliance Act (FATCA). 

On Wednesday, Treasury said it would work in cooperation with its key European trading partners, as opposed to arranging information exchange agreements with individual firms.

In this regard, “the US is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in US financial institutions by residents of France, Germany, Italy, Spain and the United Kingdom”, the six sovereigns said in a joint statement. 

Passed by Congress in 2010, FATCA requires foreign firms to provide US tax authorities the name, address, tax identification number, and other key financial details of their US investors or suffer a 30 percent withholding tax on certain US-connected payments.

Critics have slammed the law as overstepping its jurisdictional reach, requiring firms to implement new reporting and payment systems to meet US standards and possibly violate local data privacy laws. 

The latest proposals attempt to mitigate those concerns by enabling firms to modify already existing reporting systems with local tax authorities, who would then relay information on their behalf to US tax authorities. 

However the list of nations included as “FATCA partners” did not include a number of popular offshore fund domiciles, including the Cayman Islands, Ireland and the Channel Islands, meaning individual arrangements in those regions would still be needed. A Reuters report claimed Treasury is holding conversations with other governments beyond the five that are cited. 

All foreign firms caught by FATCA, regardless of country, “will still have to invest in client identification and will most likely still need to amend their existing on-boarding processes,” said Angela Foyle, a tax partner at professional services firm BDO.

Certain deadlines have also been pushed back, as Treasury understands “that compliance with the FATCA requirements will require some lead-time to reconfigure computer systems, adjust procedures, and inform customers,” said Foyle. 

FATCA is scheduled to take effect in 2013.