(Image courtesy the Guardian)
…and confusion reigns!
The on-line portal for foreign financial institutions (FFI) to register for FATCA set up by the U.S Internal Revenue Service goes ‘live’ on July 15 but the sign-in instructions have still not been finalised.
Thousands of banks, insurance companies, investment funds and other FFIs with U.S. customers are required to register with the IRS by October 25 to avoid FATCA penalties due to start in less than six months.
The problem is that if the IRS does not produce guidance within a couple of weeks of the portal’s opening this delay this will inevitably lead to a ‘scramble’ by FFIs to register before the October 25th cut-off date for registration.
Worst case fears are that the portal could become overloaded and ‘crash’ leaving FFIs unable to register through no fault of their own and exposed to the application of the U.S 30% withholding levy.
So widespread is the concern that the Securities Industry and Financial Markets Association (SIFMA), citing the fact that FATCA was delayed once before, has renewed its call that the imposition of FATCA penalties be postponed by another year to 2015.
(US President Obama with his Treasury Secretary Jack Lew. Image: Boston Globe)
Predictably the official line of the IRS is that it continues to push ahead with FATCA implementation.
The foreseeable problems with on-line registration for FATCA is just another in a series of widely publicised ‘knocks’ that this global tax compliance initiative has received in the past couple of weeks.
Of the nine FATCA implementation arrangements, referred to as intergovernmental agreements (IGA), that the US has negotiated, only Germany seems set to ratify theirs which would allow German firms to report U.S. client information via their local tax authorities rather than directly to the IRS.
In Canada, debate on a proposed IGA has raised the inevitable questions of sovereignty, access to confidential taxpayer information and the ability of the US to secure the integrity of the information they collect.
Russia has demonstrated its apathy to this extra-territorial application of U.S domestic tax evasion law commenting only that they are studying the implications and would be in a position to discuss a U.S IGA sometime in the future.
It has also been reported that Chinese government officials have so far been publicly dismissive of FATCA, throwing into question whether financial firms in Hong Kong will be able to comply with the FATCA law. According to a Hong Kong official, Hong Kong is “initiating some preliminary discussion” with U.S. officials.
U.S Senator Paul Rand introduced a bill to repeal FATCA and has suggested that contrary to the one version of the model IGA which provides for the reciprocal exchange of information between the US and its FATCA partner, legally the U.S Treasury cannot reciprocate.
More on the lack of U.S reciprocity here.
Finally, regional and multilateral FATCA-inspired legislation is taking root in the European Union and possibly at the multilateral level using the OECD crafted Convention on the Mutual Administrative Assistance in Tax Matters. With the blacklisting of tax havens seemingly contingent on their willingness to sign on to to G20 backed multilateral FATCA, the problems with the IRS on-line registration portal may just be the beginning of the fallout from FACTA.
For more on FATCA click here.