Over the past several, years, the U.S. government has signed intergovernmental agreements (IGAs) with dozens of partner countries (83 altogether at latest count), which are designed to promote the implementation of the FATCA law requiring financial institutions (mainly banks and investment houses) outside the U.S. to report information on financial accounts held by their U.S. customers to the IRS.
If foreign banks and other institutions do not comply or if they are located in a non-compliant country, they and their account holders can be subject to an automatic 30% withholding tax on U.S.-source payments such as interest and dividends.
The Challenge of FATCA Implementation
Many partner countries have found it difficult to enact the domestic measures necessary to bring their IGAs into legal force. Until now, the U.S. has been relatively patient with these countries, offering them several deadline extensions and treating them as if they have an IGA in effect as long as they provide assurances of imminent compliance.
A recent IRS Announcement is seemingly the first indication that the U.S. government’s patience is running thin and it’s time for partner countries to comply or have their financial institutions face the FATCA consequences.
The Pressure Is On
In the Announcement, the U.S. Treasury stated that each country with an IGA that is not yet in force and that wishes to continue to be treated as having an IGA in effect must provide by December 31, 2016, a date not too long in the future, a detailed explanation of why it has not yet brought the IGA into force and a step-by-step plan that the country intends to follow in order to bring the IGA into force, including expected dates for each step in the plan.
The Announcement further states that, on January 1, 2017, the U.S. Treasury will begin updating its current list of IGAs to provide that certain countries that have not brought their IGAs into force will no longer be treated as if they have an IGA in effect. This could have potentially disastrous consequences for the financial institutions located in such a country. It remains to be seen whether this added pressure will cause countries to further bolster their efforts to become FATCA compliant before it is too late.
FATCA’s Impact on You
FATCA has impacted U.S. expats in many important ways. Most importantly, it has allowed the IRS to extend its global tax reach further than ever before. Your local foreign bank may soon send information about you to the IRS if it hasn’t done so already. It is therefore becoming an increasingly bad idea for non-filing U.S. expats to hide their heads in the sand.
In addition, your annual IRS information reporting requirements have increased significantly under FATCA, with the addition of Form 8938, which must be filed to disclose specific information about your foreign financial assets.
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