The entire burden for implementing the Foreign Account Tax Compliance Act (FATCA) falls on U.S. and foreign financial services firms, according to the Securities Industry and Financial Markets Association (SIFMA). In addition, a former acting IRS commissioner who helped oversee the rollout of the anti-tax evasion law said he is not certain whether it will be worth the trouble its implementation causes. FATCA withholding began on July 14.
“We’ll see,” former Acting IRS Commissioner Steven T. Miller recently said of the new law. “I can’t even say with conviction that I am sure that, looking strictly on a cost-benefit basis, FATCA benefits will outweigh the cost,” he added, referring to the variety of compliance burdens.
FATCA provisions impose a 30-percent withholding tax on payments to a foreign financial institution (FFI) of U.S. source interest, dividends, rents, salaries or gross proceeds from the sale of U.S. assets. The tax can be avoided, but only if the FFI enters into an agreement with the IRS to comply with information reporting requirements with respect to U.S. accounts and the FFI agrees to withhold on certain payments to nonparticipating FFIs and individual account holders.
According to SIFMA, FATCA is the most comprehensive statute ever passed to enhance compliance by Americans with U.S. tax laws through information reporting and withholding. “It is important that Congress and the Executive branch also understand that the way in which they develop such policy through legislation and regulation can and does result in a significant burden on the financial services sector, who in effect is required to step into the shoes of the government as it relates to reporting, collection and enforcement,” said SIFMA President Ken Bentsen.
The final FATCA rules are significantly impacting the systems and operations of both U.S. and non-U.S. companies, SIFMA believes. “They will require companies to modify their internal systems, control frameworks, processes and procedures on or before key FATCA implementation dates go into effect,” the association notes.
SIFMA said it shares the objective of Congress and the Treasury to improve offshore tax compliance and has submitted extensive comments to assist the Department of the Treasury and the IRS in crafting regulations that are effective in accomplishing FATCA’s goals that are commercially viable, and that will not unnecessarily disrupt the operation of the financial markets. “SIFMA thanks the Treasury for the latest notice implementing a transition period which will allow financial institutions to comply more effectively while minimizing unnecessary cost burdens and reducing potential harm to the U.S. economy in the long-run,” it said. “This new guidance will also allow extra time for more economies to sign intergovernmental agreements, to make the official transition to FATCA in 2015 more comprehensive and with fewer penalties.”
Provided by CCH