WASHINGTON Oct 29 Foreign banks and investment
funds got more detail from the Treasury Department on Tuesday
about how to comply with a new U.S. anti-tax evasion law,
including a draft agreement that some institutions must sign to
avoid possible penalties.
The new details underscore the importance of certain
bilateral agreements Treasury officials are negotiating with
dozens of countries to implement the Foreign Account Tax
Compliance Act (FATCA), set to take effect in July 2014.
FATCA targets Americans who try to hide assets overseas to
avoid paying tax. As it has taken practical form since passage
by Congress in 2010, its shape has shifted amid complaints by
banks, insurers and expatriates.
The law will require foreign financial institutions to tell
the tax-collecting U.S. Internal Revenue Service about
Americans' offshore accounts worth more than $50,000.
The U.S. government has finished seven bilateral agreements
with countries that will allow their financial institutions to
comply with FATCA via their home-country regulators.
So-called Model 1 "intergovernmental agreements" (IGAs) of
this sort have been signed with Denmark, Germany, Ireland,
Mexico, Norway, Spain and Britain.
The draft agreement just released, along with some new rules
also proposed on Tuesday, will not apply to financial
institutions in countries with Model 1 IGAs. Where pacts of this
type are absent, institutions will need to comply with FATCA
rules and deal with the IRS on their own.
Switzerland and Japan have Model 2 agreements. Their firms
will need to sign the new draft FATCA agreement. The Model 2 IGA
protects foreign banks from violating local privacy laws, but it
does not spare them having to report to the IRS.
Foreign institutions that fail to comply at all with FATCA
face a potential 30-percent withholding tax on their U.S. source
income, a penalty that could effectively freeze them out of U.S.
The Treasury hopes to get comments from firms before
finalizing the draft agreement by the end of the year.
"The agreement and forthcoming guidance have been designed
to minimize administrative burdens and related costs for foreign
financial institutions and withholding agents," Deputy Treasury
Assistant Secretary for International Tax Affairs Robert Stack
said in a statement.