The US Internal Revenue Service has responded to pressure from foreign
governments and banks by delaying a controversial law that requires financial
groups to report their American clients to the
The Foreign Account Tax Compliance Act, a sweeping attempt to fight tax evasion which was supposed to come into force at the start of 2013, will be phased in over several years, the IRS said.
The law has sparked a firestorm of protest from overseas banks, which
complained they were being deputised as US enforcement officials under
instructions to identify US-linked accounts worth more than $50,000. If they
refuse to comply, they would face a choice of a punitive 30 per cent withholding
tax on payments received from the
Under the new schedule, private banks, which face the most onerous requirements, will have to provide details on clients with accounts with more than $500,000 by the middle of 2014. Lower value accounts at private banks can wait until the end of 2014 while other accounts do not have to be reported until 2015.
“The phased-in approach recognises the operational reality faced by
financial institutions,” Doug Shulman, IRS commissioner, told the Financial
Times. He said a lot of banks had complained that their computer systems were
not set up to meet the
Banks have said they have already been racking up significant costs and that eventually the task of scouring records for US citizens and reporting them could run into the billions of dollars and conflict with domestic privacy laws.
Mr Shulman said the
He said there would be more guidance to come – “There’s still lots of questions about who’s in, who’s out” – and said he hoped not to be imposing the withholding tax on non-compliant institutions.
“The goal was never to be a withholding regime,” he said. “The goal is that there’s no withholding, that we just get that transparency.”
If the withholding tax is imposed, it will only be imposed on US-sourced
interest and dividend payments in 2014. Proceeds from the sale of US securities
will not be taxed until 2015 and more indirect
Some believe the tax threat will lead to foreign groups trying to remove
themselves from US capital markets. But officials are sceptical that the burden
of Fatca will outweigh the benefit of access to the
This article has been prepared by specialists of ABLV Corporate Services based on mass media publications. Specialists of ABLV Corporate Services provide legal and tax advise, including advise on international tax planning, establishment of holdings, trade, investment, and protection structures, purchase of real estate and other assets, as well as advise on change of residence and acquirement of residence permits. More detailed information on services provided by ABLV Corporate Services can be found at http://www.ablv.com/ru/services/advisory