The Internal Revenue Service (IRS) announced that it has exchanged financial account information with foreign tax administrators in accordance with a September 30, 2015 deadline.
This marked an important development in the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA is intended to require foreign financial institutions (FFIs) to report financial accounts held by U.S. taxpayers to the IRS. Those financial institutions that fail to make these disclosures are subject to a 30 percent withholding regime on payments from the U.S. to their accounts.
FATCA has been the subject of debate and criticism by many in the banking industry who claim it places large burdens on their organizations. Furthermore, many suggest that those accounts will simply be relocated and result in a loss of deposits. While many continue to debate the impact of FATCA, this recent announcement shows that the IRS is proceeding with its plans.
The September 30 deadline stems from a number of intergovernmental agreements (IGAs) that set forth a deadline for the IRS to implement an exchange process for sharing account information with several foreign bodies. The IRS was required to develop an information system that could receive, store, and transmit the information. It also needed to develop legal and technical standards for the information system and determine that the foreign jurisdiction met its safeguards for handling confidentiality and cybersecurity considerations.
While the IRS has met the deadline, other roadblocks to implementing FATCA persist. For example, the Canada Federal Court of Appeal refrained from insisting that the Canada Revenue Agency (CRA) disclose account information of U.S. citizens living in Canada to the IRS. The opinion noted that the CRA was planning to disclose the information at the close of business on September 30.
For questions on FATCA, contact Mark Chaves, International Tax Leader for Daszkal Bolton, at [email protected].