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Over 60 nations on board with FATCA and the IRS have offered leniency

The US Treasury Department has released a new list of countries that have signed International Governmental Agreements (IGA’s). Currently there are over 30 nations having signed under Model 1 and Model 2 IGAs. Included on this list are additional countries who have agreed “in substance” to comply with FATCA, but have not formally signed the agreement. The US Department of Treasury has decided to treat these jurisdictions as countries ‘in effect,’ through December 31, 2014, under their current IGA. Alternatively, if these jurisdictions do not reach a final agreement and signature by December 31st, 2014 they will be taken off this list. This brings the current total to a whopping 62 jurisdictions in agreement!  To see the most updated list visit the US Department of Treasury website.

Since FATCA was introduced (4 years ago) we are finally approaching the first withholding deadline of July 1, 2014. US-sourced payments to foreign banks and investment vehicles will be subject to a 30% withholding tax if the Foreign Financial Institution (FFI) have not met certain registration or due diligence requirements imposed by the Internal Revenue Service (IRS). Starting in 2015 these FFI’s and Non Foreign Financial Institutions (NFFE’s) will begin reporting information of their US account holders to the IRS or local revenue departments depending if they fall under the Model 1 or Model 2 agreement. The UK is a Model 1 participant which means most of their reporting will be made directly to HMRC. Any US account holders that are recalcitrant (non-compliant) will also need to be reported.

The good news: Yes, there is some relief in all of this. The IRS released guidance Notice 2014-33, on May 2, 2014 that they will provide leniency to those who are making an effort and acting in ‘good faith’ to comply with FATCA regulations. While the implementation of FATCA will still take effect on July 1st, the IRS will use 2014 and 2015 as a period of transition, taking into account any “good faith efforts” institutions have made toward the requirements of registration and compliance, in order to ease the administrative process. The IRS has also expanded definitions of ‘Preexisting Obligation’ to permit accounts before January 1, 2015 to be considered as having already existed for FATCA purposes. This will allow such accounts to avoid being subjected to stricter due diligence requirements. However, the IRS deems that if an entity has not made every effort to comply with the regulations, they will not be given any relief during this transition period.

If you would like to discuss how this affects your organization with one of our FATCA specialists, or if you need assistance in bringing your US tax affairs up-to-date feel free to contact us.

 

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