Proposed regulations to implement the Foreign Account Tax Compliance Act (FATCA) released last week seem somewhat less onerous than expected for U.S. corporations that make payments overseas. The proposed regs also include measures that alleviate foreign financial institutions’ concerns about the cost of complying and possible conflicts between FATCA and local laws.
As part of the government’s effort to curb tax evasion, FATCA requires the disclosure of information about overseas bank accounts of U.S. taxpayers. The enforcement mechanism is a 30% tax that must be withheld when paying foreign entities that are not in compliance with FATCA.
While previous IRS notices had discussed procedures that financial institutions would have to implement to investigate and document all their existing accounts and the account holders, Angus says, “the proposed regulations do a lot to try to focus that effort on relying on existing information, as opposed to needing to seek new information, and on larger accounts.” That sort of targeting “will allow institutions to focus their efforts on the accounts that have the greatest potential for concern,” she says.
And to alleviate concerns that banks’ reporting data about accountholders to the Internal Revenue Service would violate local laws, Treasury last week announced an alliance with regulators in France, Germany, Italy, Spain and the U.K. to implement FATCA. In those countries, banks will report to their own regulators, which will relay the information to the U.S.