Americans abroad, hear this: The U.S. needs your money and will cross borders to get it.
That was the message conveyed today by speakers at a Canadian Institute conference looking closely at the new U.S. Internal Revenue Service proposal governing accounts held by American citizens residing abroad.
The Foreign Account Tax Compliance Act (FATCA) is the latest in efforts by the U.S. to improve tax compliance involving foreign financial assets and offshore accounts. Translation: We’re going after tax cheats who live abroad.
The IRS has gotten an earful from the financial services industry, which is singing in unison about its inability to meet established compliance dates.
For its part, speakers say the U.S. government won’t back down from its deadlines, because “it wants to put pressure on the system.”
So far, five countries (France, Germany, Italy, Spain and the U.K.) have announced their intentions to partner with the U.S. on the new law. To date, Canada has not said whether it will join, but aspects of existing U.S./Canada tax treaties suggest participation is inevitable.
“It’s a mistake to think FATCA is just a U.S. thing,” John Staples, a partner Burt, Staples & Maner, a Washington, DC-based law firm, told attendees. “You have to think about FATCA on a multinational level.”
Signers are obligated to enable foreign financial institutions to apply due diligence to identify U.S. accounts (read: residents) abroad. Also, they must authorize automatic exchange of U.S. account information to the IRS.
Both financial institutions and political jurisdictions outside the U.S. are complaining their local privacy laws will conflict with FACTA requirements.
FATCA reporting can apply to the following:
- U.S. account information;
- Payments that are subject to withholding taxes; and
- Information about non-participating foreign financial institutions.
Compliance dates are staggered. Speakers say these are likely phase-in dates:
- January 1, 2013 for new account procedures and system upgrades by U.S. financial institutions;
- July 1, 2013 for participating foreign financial institutions;
- January 1, 2014 for withholding for U.S. source Fixed, Determinable, Annual, or Periodical (FDAP) income;
- January 1, 2015 for U.S.-source gross proceeds; and
- Not before 2017 for foreign pass-through payments.