FATCA - Foreign Account Tax Compliance Act

The „Foreign Account Tax Compliance Act (FATCA)“ was introduced on the 18th of March, 2010 as part of the „Hiring Incentives to Restore Employment“ (HIRE) Act by the American tax agency, IRS (Internal Revenue Service). The aim is to reinforce US Tax Reporting for foreign financial institutions to prevent tax evasion through foreign investment by US taxpayers. For this purpose, non-US financial service providers ("Foreign Financial Institutions" or “FFIs”) worldwide are virtually forced to sign a contract with the IRS to forward the customer and account data. Financial Institutions and their customers who are not willing to cooperate with the IRS will be charged a penalty tax of 30% of their US-based income (including sales proceeds). According to the latest publications (IRS Notice 2011_53 dated 07/14/2011), the deadline of the FATCA coming into effect has been extended by 6 months to 30.06.2013. From this point on, FATCA will apply to all US-related payments.

The FATCA Notice 2011-34 gives the best insight into the requirements of this act and also provides for a better understanding of the derivation of the impact on internal systems and processes of our customers reporting.

The key elements of FATCA are:

  • Comprehensive identification obligations of potential US accounts
  • Introduction of a penalty tax from 01.01.2014 in the amount of 30% in addition to the general US withholding tax
  • Publication of the "Proposed Regulations" is still scheduled for late 2011. The "Final Regulations" and the final version of the FFI and the Treaty Reporting forms for "Withholding Agent" and PFFIs are announced for the middle of next year (summer 2012)
  • The current QI contracts which expire on 31/12/2012 will be automatically extended until 31.12.2013

Effects of FATCA are:

a) When there is no FATCA Agreement:

  • 30% penalty tax on all income of all US customers (US and non US citizens including stocks)
  • Possible loss of the business relationship with " Compliant FFI's "

b) In the case of non-cooperative FFIs and Customers:

  • Separation up to the closure of this business

messer + schölles offers realization skills to structure and finalize accordant projects successfully.

  • Project management
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