Editor’s note: This publication asked Mike Laveman, a partner at accounting firm EisnerAmper, about the latest developments in how the US FATCA Act is to be implemented. The legislation is due to start taking effect from next year.
Could you spell out, as clearly as you can, what the new IRS regulations say?
On February 8, 2012 the Department of Treasury issued nearly 400 pages of proposed regulations dealing with FATCA.
FATCA was signed into law on March 18, 2010 and due to its large scope implantation date is January 1, 2013. FATCA’s purpose is to obtain transparency as to where US Citizens have invested their money. Simultaneously, the Department of Treasury issued a joint statement with France, Germany, Italy, Spain and the UK which expressed a mutual intent to enter into an intergovernmental approach to improving international tax compliance and implementation of FATCA.
The goal of the intergovernmental framework was to address legal issues under FATCA, simplify FATCA implementation and reduce compliance costs
On July 26, 2012 the Department of Treasury published a model intergovernmental agreement. This agreement reflects the government-to-government sharing of information concepts that was expressed in February. The model agreement spells out specific procedures on how information is to be shared. Two versions of the model agreement have been issued - a reciprocal and non-reciprocal version. The reciprocal version will allow foreign governments to receive information from the US about accounts held in US financial institutions by residents of their countries.
What are the key features of the new guidance? Why are they important?
The intergovernmental agreements will allow foreign financial institutions (FFIs) and non-financial foreign institutions to avoid directly registering their entities with the Internal Revenue Service which they may have an obligation [to do] otherwise under FATCA. In lieu of registration these institutions will provide information directly to their government who in turn will provide the information to the US.
What sort of financial entities will be affected?
FATCA impacts a wide range of foreign financial institutions. The rules were written extremely broadly and will capture non-US entities that accept deposits in the ordinary course of a banking or similar business, hold financial assets for the account of others, or are engaged primarily in the business of investing or trading securities (this will include non US hedge funds, private equity, venture capital funds).
