INTRODUCTIONAs we have previously reported, the Foreign Account Tax Compliance Act ("FATCA") is becoming a significant concern to foreign banks, brokers and investment funds because of its potentially far reaching scope. When FATCA's "withholdable payment" rules take effect in 2014, Sections1 1471 through 1474 of the Code will require that a foreign financial institution ("FFI") has signed an agreement ("FFI Agreement") with the U.S. Internal Revenue Service ("IRS") in order to avoid a 30% U.S. withholding tax on U.S. source interest, dividends and sales proceeds, as well as on "passthru payments." One of the concerns expressed by FFI's is that the exchange of information pursuant to an FFI Agreement violates privacy laws of foreign countries. Because of these concerns, in February the U.S. Treasury ("Treasury") released a joint statement from the U.S., France, Germany, Italy, Spain, and the United Kingdom regarding an intergovernmental approach to improving international tax compliance and implementing FATCA. The joint statement noted that the U.S. is open to adopting an intergovernmental approach to implement FATCA and improve international tax compliance and is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in U.S. financial institutions by residents of France, Germany, Italy, Spain, and the United Kingdom (i.e., a country-to-country information sharing model). Thus, in addition to strict compliance with Sections 1471 through 1474 (e.g., signing an FFI Agreement), the February announcement reflects a second approach designed to achieve FATCA's goal of increased compliance with U.S. tax law. Last week, Treasury issued joint statements with Switzerland and with Japan that contemplate a third approach for implementation of FATCA. This third approach is a hybrid between the straight FFI Agreement and the intergovernmental approach referred to above, in which FFIs would satisfy their reporting requirements by reporting directly to Treasury, supplemented by exchange of information between the relevant countries upon request while at the same time simplifying the implementation of FATCA. SWISS FRAMEWORK The U.S.-Swiss joint statement explains that the U.S. and Switzerland would enter into an agreement pursuant to which Switzerland: (i) would direct all non-exempt or non-deemed-compliant Swiss financial institutions to enter into an FFI Agreement with the IRS, (ii) enable Swiss financial institutions to...
U.S. Treasury And Japan/Switzerland Announce They Will Negotiate Toward A Third Way For FATCA Compliance
|Author:||Mr Thomas Humphreys, Remmelt A. Reigersman and Jared B. Goldberger|
|Profession:||Morrison & Foerster LLP|
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