Background To Latest Delay
Since 2011 we have written a number of blog posts on FATCA. In our blog post FATCA For The UK, we mentioned an implementation date of 1 January 2013. That date was later postponed to 1 January 2014. We highlighted this in our blog post FATCA – Implementation Deadlines and provided an overview of the key implementation deadlines following the release of IRS Announcement 2012 – 42. However, in July of this year, the US Treasury Department announced the further postponement of the withholding tax regime imposed by FATCA on foreign banks and other foreign financial institutions (FFIs) by six months until the 1 July 2014.
Have All The FATCA Deadlines Been Affected?
As a result of this 6 month postponement, the 30% withholding tax deduction applicable against non compliant FFIs has been extended to the 1 July 2014 However, the first report on due diligence requirements under FATCA continues to be due in 2015 and must include information about accounts opened and maintained for both 2013 and 2014.
Struggling To Enforce The New Rules
This latest delay possibly underscores a struggle by the US Treasury Department to implement the new rules. Foreign banks have argued that FATCA will have a significant implementation cost and that it is very broad and far reaching, especially where you have cross-boarder payments on swaps and other derivatives. Kenneth Kies, a lobbyist in Washington D.C., said that the extension “underscores what has been obvious – that this is an enormously complex and burdensome regime to deal with”, adding, “people just aren’t ready.”
The disclosure provisions under FATCA clash with the domestic laws of many jurisdictions. To try and overcome this some countries have signed inter-governmental agreements (IGAs) with the US. However, some important jurisdictions have not signed up to IGAs, including Canada and China. To date the US Treasury has signed nine IGAs.
The questions for many FFIs are twofold:
1) Will the IGA be in place in their jurisdiction by the time FATCA comes into force?
2) Is the IGA legal?
The legality of these IGAs has been questioned. FATCA does not provide for the signing of IGAs and it is unclear if the US Treasury has the authority to sign such agreements without congressional approval.
Reciprocity Of Information
Another reason for delay is the sharing of information from the US back to the host country. Some jurisdictions are demanding reciprocity of information from the US financial sector. The US Treasury is in IGA discussions with over 80 jurisdictions and some of these jurisdictions are looking for the information from US financial institutions.
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