The U.S. Department of the Treasury has released new guidance to foreign institutions to help them comply with the new U.S. anti-tax evasion law, most commonly referred to as the Foreign Account Tax Compliance Act (FATCA).
Many foreign banks, investment firms and other financial agencies have expressed some concern over the lack of clarity and guidance provided by the U.S. that is essential for helping them comply, and the Treasury Department’s most recent instruction is designed to help these institutions avoid penalties under the tax law. For instance, the guidance provides a draft agreement for participating institutions directly engaging in agreements with the Internal Revenue Service and those reporting through a intergovernmental agreement. The notice also provides foreign institutions with advance notice prior to the beginning of FATCA withholding and account due diligence requirements on July 1, 2014.
“The agreement and forthcoming guidance have been designed to minimize administrative burdens and related costs for foreign financial institutions and withholding agents,” said Deputy Assistant Secretary for International Tax Affairs Robert Stack. “Today’s preview demonstrates the Administration’s commitment to ensuring full global cooperation and a smooth implementation.”
FATCA is designed to detect Americans who try to hide assets overseas to avoid paying U.S. taxes. While most foreign institutions have announced their intent to participate in the new tax evasion initiative – or avoid being frozen out of U.S. financial markets – there has also been a great deal of frustration from institutions about the lack of timely guidance from the government. Many are concerned that they will inadvertently violate compliance guidelines, simply because they have not been given sufficient information. Foreign institutions that fail to comply with the law face a potential 30 percent withholding tax on their U.S. income, which could greatly jeopardize their global standing and ability to enter into meaningful financial agreements with other countries.
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