Feb. 8 (Bloomberg) -- The U.S. Treasury Department and the Internal Revenue Service are trying to make it easier for overseas banks to comply with a tax withholding and information-collection requirement for some U.S. clients.
Regulations proposed today would allow overseas banks to use information they already collect to comply with due diligence requirements, the Treasury said in a press release today. The proposal would delay the implementation schedule under which foreign financial institutions must report information about their customers. The regulations also would expand the range of financial institutions that won’t be required to enter into formal agreements with the IRS.
“It’s clear that Treasury has been listening to the comments and they’re responding to them,” said Denise Hintzke, global leader for foreign account tax compliance at Deloitte Tax LLP. “These regulations are moving, I think, forward in making these provisions workable for the industry.”
The announcement is intended to address concerns of overseas financial institutions while making it clear that the U.S. plans to implement the Foreign Account Tax Compliance Act, or FATCA. The 2010 law requires banks to withhold 30 percent from “certain U.S.-connected payments” to the accounts of U.S. clients who don’t disclose enough information to the IRS.
“When taxpayers overseas avoid paying what they owe, other Americans have to bear a disproportionate share of the tax burden,” Emily McMahon, the Treasury’s acting assistant secretary for tax policy, said in the press release. “FATCA is an important part of the U.S. government’s effort to address that issue and these regulations implement FATCA in a way that is targeted and efficient.”
Overseas financial institutions including Toronto-Dominion Bank of Canada, Allianz SE of Germany and Aegon NV of the Netherlands have said previous versions of FATCA were too complex. In some cases, the reporting requirements under U.S. law conflicted with bank secrecy laws and other banking regulations.
U.S. citizens living outside the country have complained about the burden created by the reporting requirement, which can apply to people who have never lived in the U.S. and whose parents were U.S. citizens.
The Treasury said it wouldn’t exempt any country from FATCA’s compliance requirements. The U.S. also issued a joint statement with France, Germany, Italy, Spain and the U.K. to enforce the law.
“The United States is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in U.S. financial institutions by residents of France, Germany, Italy, Spain and the United Kingdom,” according to the statement. “The approach under discussion, therefore, would enhance compliance and facilitate enforcement to the benefit of all parties.”
Michael Mundaca, who preceded McMahon as the U.S. Treasury’s top tax policy official, said in a statement that the international cooperation marked a significant step forward.
“I imagine Treasury will now approach other governments about adopting this model, if they haven’t already done so,” said Mundaca, now co-leader of the Americas Tax Center at Ernst & Young LLP. “It will be interesting to see how other countries and especially other financial centers react.”
Several countries where U.S. citizens hold assets, including Canada and Switzerland, weren’t included in the agreement.
James Mastracchio, a tax partner at Baker & Hostetler LLP in Washington, said the U.S. is trying to respond to concerns from other governments and banks around the world about the reach of the U.S. law.
“If we do this, what’s to stop any other country from doing this?” he said in an interview.
The changes proposed today also would require the financial institutions to do paper searches of fewer accounts for U.S. connections. The rules would limit more labor-intensive efforts to accounts with more than $1 million.
“It’s really just the bigger accounts,” Hintzke said.
Ken Bentsen, executive vice president for public policy and advocacy at the Securities Industry and Financial Markets Association in Washington, said his group welcomes the additional time to comply with some of the law’s requirements.
“Nevertheless,” he said in a statement, “implementation of FATCA will impose significant challenges and costs for many United States financial services firms and their customers.
Members of his group include units of Barclays Plc, UBS AG and BNP Paribas SA.
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