Russian bill eases FATCA concerns

Russia reportedly amended its banking laws to allow local GPs to comply with FATCA.

Russia’s banking laws were amended to allow domestic private fund advisors and other financial institutions to comply with the US’ Foreign Accounts Tax Compliance Act (FATCA), according to local media reports. Prior to the reforms there was concern GPs honoring the US tax information exchange law would violate Russian secrecy laws.

FATCA requires foreign financial institutions (including private equity firms) to report tax information on their US account holders to the US Internal Revenue Service (IRS) or face a 30 percent withholding tax on certain income.

In order to avoid having local financial institutions potentially violate secrecy laws by sending client information to a foreign authority, most countries striking FATCA pacts have negotiated a “Model I” type intergovernmental agreement with the US. This, unlike the “Model II”, allows GPs to submit reports to local authorities who then relay that information with their US counterpart.

Russia reportedly sought to agree this Model I agreement but talks recently broke down, according to local media reports. The two superpowers recently exchange a round of economic sanctions on top political officials following the geopolitical crisis in Ukraine. It is unclear if the Ukraine situation resulted in the stalled FATCA negotiations.

Russian GPs have until May 5 to register with the IRS ahead of FATCA’s July 1 go-live date.