US eases banks' burden

Time of article published Feb 8, 2012

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The US Treasury Department on Wednesday eased the burdens imposed on many banks and other financial institutions by a crackdown on Americans' offshore tax dodging, and enlisted five European governments to play a key role in the global effort.

At issue is the Foreign Account Tax Compliance Act, or FATCA, a controversial set of measures enacted by Congress in 2010 that has drawn sharp criticism from the financial industry worldwide about costs and legal issues.

FATCA is expected to take effect in 2013 but Treasury announced some delays in implementing some key details.

FATCA covers accounts in foreign banks and other institutions held by US clients with more than $50,000 in assets.

The new proposed regulations from Treasury call for France, Germany, Italy, Spain and the United Kingdom to be part of “a government-to-government framework for implementing FATCA.”

These five governments could comply with the law by collecting information on Americans' FATCA-covered financial accounts and forwarding it to the United States.

Under the original draft of FATCA, financial institutions themselves, not their governments, had to collect and report the data.

Treasury also said new proposed regulations would eliminate an earlier requirement that foreign financial institutions enter into separate agreements with the US Internal Revenue Service to disclose required data under FATCA.

In addition, Treasury said the United States would collect and share information with the five countries on accounts held in US financial institutions by their citizens.

“The United States is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in US financial institutions by residents of France, Germany, Italy, Spain and the United Kingdom,” said a statement from Treasury.

The new framework addresses the issue of secrecy laws in some countries, which prevent banks from directly disclosing client data to the United States, Treasury said.

Under the new framework the banks would report the information to their own governments, which would then turn over the data to the United States, it said.

The foreign countries, Treasury said, would agree with the United States to become “FATCA partners.” That would involve passing their own disclosure laws; getting banks to collect and disclose data to their own national authorities; and then transmitting that data to the United States.

As originally drafted, FATCA required that foreign financial institutions either collect and turn over data on US clients with accounts of at least $50,000, or withhold 30 percent of the interest, dividend and investment payments due those clients and send the money to the IRS.

Foreign institutions and entities that refused or failed to comply would face bills for taxes due, a penalty of 40 percent of the amount in question and heightened scrutiny by the IRS.

“FATCA partners” would not have to comply with the previous requirement that payments made to foreign financial institutions be automatically subject to US withholding tax, Treasury said.

Financial institutions and intermediaries had objected that forcing banks to track pass-through payments on syndicated

loans, swaps, foreign currency trades and routine money transfers was unduly burdensome.

Pass-through payments are payments that flow through separate legal entities on their way to the recipient.

Those affected by FATCA include commercial, private and investment banks and shells and trusts; broker-dealers; insurers; mutual, hedge and private-equity funds; domiciliary companies; limited liability companies, partnerships; and other intermediaries and withholding agents. - Reuters

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