The U.S. Department of Treasury and the Internal Revenue Service (IRS) has issued another set of proposed regulations implementing the reporting and withholding requirements under the Foreign Account Tax Compliance Act or FATCA.
In 2010, President Obama signed the Hiring Incentives to Restore Employment Act that included FATCA in an effort to combat tax evasion by U.S. persons holding investments in offshore accounts.
The new legislation becomes effective December 31, 2012 and applies to certain foreign financial institutions and U.S. taxpayers holding financial assets outside the country.
The goal of FATCA is to combat tax evasion of U.S. taxpayers by requiring foreign financial institutions to either report holdings by U.S. individuals or withhold 30% of certain payments.
“When taxpayers overseas avoid paying what they owe, other Americans have to bear a disproportionate share of the tax burden. 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 . We believe these efforts will serve as a complement and catalyst to the ongoing global efforts to combat offshore tax evasion.” said Acting Assistant Secretary for Tax Policy Emily S. McMahon.
The 338-paged proposed regulations aim to
- Reduce the administrative burdens associated with the FATCA requirements by permitting FFIs in many cases to rely on information they already collect;
- Expand the categories of FFIs to be deemed in compliance with FATCA without the need to enter into an agreement with the IRS, to allow the IRS to focus on higher-risk financial institutions that provide services to the global investment community; and
- Phase-in the reporting and withholding obligations of FATCA over an extended transition period to allow companies covered by the rules to be able to develop the necessary systems to properly comply.
The regulations do not propose an exemption from FATCA for any jurisdiction, but instead offers a foundation for information sharing under existing tax treaties.
The public hearing to discuss the proposed regulations is scheduled for May 15, 2012 at 10 a.m.