WASHINGTON: In one week, the United States is scheduled to begin registering foreign financial firms with US customers for a new anti-tax evasion law, despite industry lobbying to secure another implementation delay.
The Internal Revenue Service (IRS) still has not finalised sign-up instructions for the new online portal, due to open by July 15 in one of the last steps toward implementing the Foreign Account Tax Compliance Act (FATCA) of 2010.
Hundreds of thousands of banks, insurance companies and investment funds with US customers are required to register with the IRS, an arm of the US Treasury, by Oct 25 to avoid FATCA penalties starting on Jan 1, 2014.
“At this point people have thrown up their hands,” frustrated by the lack of guidance despite the looming deadline, said Laurie HattenBoyd, a principal at Big Four accounting firm KPMG LLP. Treasury officials would need to consider postponing the penalties if they did not produce guidance before the end of July, she said.
The Securities Industry and Financial Markets Association (SIFMA), the industry’s largest trade group, last month renewed its call for FATCA penalties to be delayed until 2015.
The Treasury has missed FATCA deadlines before. The law’s start date was delayed once already, by a year, to Jan 1, 2014.
A Treasury spokeswoman declined to comment on the status of the portal, saying only that work was going ahead on implementing FATCA.
The law is an unprecedented effort to root out US tax evasion on a global scale. It requires foreign financial institutions to report to the IRS information about US client accounts worth more than US$50,000. It has been decried by companies and US ally countries as unilateral, overreaching and a breach of privacy.
US law requires that Americans pay taxes on their global income, not just domestic income. Banks that do not share client information with the IRS face up to a 30% withholding tax beginning in 2014.
There are fears that late advice from the IRS on the registration process could create a registration bottleneck later this year, leading to financial institutions being hit with penalties in 2014 through no fault of their own.
“The worst-case scenario is that the portal is overloaded,” said Karl Egbert, a lawyer with Dechert LLP in Hong Kong. In an effort to address some foreign concerns, the United States has signed FATCA deals with nine other governments so far that allow firms to report US client information via their local tax authorities rather than directly to the IRS.
About 80 countries were in negotiations with US Treasury officials about such pacts, known as intergovernmental agreements (IGAs), analysts said.
Germany on Friday passed legislation to implement its IGA with the United States. The United States aims to get as many countries as it can behind the legislation.
Chinese government officials have so far been publicly dismissive of FATCA, throwing into question whether financial firms in Hong Kong will be able to comply with the FATCA law. Hong Kong was “initialling some preliminary discussion” with US officials, a Hong Kong government spokesman said. A deal with Canada has been stalled for months. A Canadian government official declined to comment on the progress of its talks with the United States.
To draw other governments into deals, US Treasury officials are pushing for congressional legislation that would grant more bank account information-sharing across borders going in both directions. But Republican members of Congress already have introduced legislation aimed at thwarting this effort. – Reuters
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