A timeline for the Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) will penalize US persons suspected to be using their offshore accounts to evade taxes on income derived from US sources. Under the new law, foreign financial institutions or FFIs will be required to scour through the accounts of their US clients and report certain accounts to the IRS. The law also targets other financial intermediaries and custodial services. The new law will require the FFIs to enter into agreements with the US IRS and commit to report the target accounts. The FFIs that fail to comply with the new tax reporting provision will face a punitive 30% withholding tax on their US income sources.
The new FATCA provision has added a new chapter to the US tax code and is the most ambitious step to curb perceived evasion of taxes by high networth individuals and ultra high networth individuals. The law will target the US persons with offshore accounts holding more than $50,000. Here is a timeline for the Foreign Account Tax Compliance Act (FATCA):
FATCA Timeline over the years
The FATCA provisions were part of the FIRE Act enacted in March 2010. Following the enactment of the FATCA provisions, the IRS issued a series of guidance and notices on the implementation of the new provisions. The first amongst these was the Notice 2010-60 that offered amongst others, the definition of the FFIs, reporting requirements and certain exemptions.
On 8 April 2011, the IRS issued another around of guidance on the implementation of the FATCA provisions. This was the crucial Notice 2011-34. This revised the earlier amendments on the Notice 2010-60 along with more guidance on issues such as the passthru payments. The third round of the FATCA guidance and notices was issued on 14 July 2011. This was the Notice 2011-53 that extends the deadline for the FFIs to sign agreements with the IRS and comply with the FACTA provisions.
The commencement of the FATCA withholding
The withholding of the FDAP payments and the gross proceeds is expected to begin in 1 January 2015. The same date will apply to the withholding of the passthru payments. The last FATC regulations were published by the IRS on 17 January 2013.
FATCA Compliance Timeline
According to the Notice 2011-53, the foreign financial institutions were required to enter into FFI Agreements with IRS by 1 January 2014. These were to be identified as the FFIs that will be participating in 2014.
FATCA Implementation Timeline
Under the Notice 2013-43, the implementation of the FATCA provisions were delayed by six months. From the previous withholding date of 1 January 2014, the new date was rescheduled to 1 July 2014. This postponement was introduced so as to give the US Treasury additional time to work out the intergovernmental agreements with governments. A couple of IGAs have already been signed with several governments including the UK, Canada and Germany. Given that the FATCA implementation process faces lots of outstanding issues and that the FATCA withholding agents have repeatedly requested for more time, it is possible there could be another delay. For now, 1 July 2014 is the official commencement date for the Foreign Account Tax Compliance Act.