The U.S. Treasury and IRS issued a joint notice on Tuesday to provide foreign financial institutions with information on how to comply with reporting and withholding provisions of the Foreign Account Tax Compliance Act.
The notice previews proposed guidance and establishes a draft agreement for participating FFIs that engage directly with the IRS and those that report using a Model 2 intergovernmental agreement. FATCA’s due diligence and withholding provisions will take effect in July, and the agreement will be finalized by year’s end.
“The Agreement and forthcoming guidance have been designed to minimize administrative burdens and related costs for foreign financial institutions and withholding agents,” Deputy Assistant Secretary for International Tax Affairs Robert B. Stack said. “Today’s preview demonstrates the administration’s commitment to ensuring full global cooperation and a smooth implementation.”
FATCA was passed in 2010 in an effort to identify American citizens using foreign accounts to evade U.S. tax responsibilities. The law requires U.S. financial institutions to withhold a certain portion of payments to FFIs that do not agree to identify and report information on American accountholders.
The U.S. Treasury—in an effort to address situations in which foreign law prevents an FFI from complying with an FFI agreement—developed two alternative model IGAs. Under Model 1, FFIs report directly to their governments, which then relay the information to the IRS. Under Model 2, FFIs report directly to the IRS, so long as the accountholder consents or unless such reporting is illegal.
The notice also includes updates on due diligence, withholding and other reporting requirements, as well as a draft FFI agreement, which will be finalized by the beginning of the year.
Though the FATCA withholding requirements do not take effect until July and the first report of FATCA information is not due until 2015, the IRS FATCA registration website is already open to FFIs to begin testing the registration process.