The exemptions and detailed regulations surrounding the introduction of FATCA are unlikely to be resolved for several months, offering little comfort to custodians and other institutions, despite the postponed start date.
The US Internal Revenue Service has announced that the impacted institutions have until January 2014 to put in place their reporting requirements under the Act. They have to commence withholding taxes, where applicable by January 2017.
But discussions are continuing on the definitions of “pension funds”, which will be exempt for the new law. For instance, Australian super funds, which typically offer pensions only as an option instead of lump-sum retirement payouts, are not yet exempt.
While the legislation, Foreign Account Tax Compliance Act, part of the broader HIRE Act, was first passed in March 2010, custodians in particular have been wrestling with the ramifications with the assistance of major accounting and legal firms. Basically, the legislation requires all institutions with US-sourced earnings to pay a 30 per cent withholding tax unless they have an individual agreement with the IRS.
The US Treasury last week said that it was in discussions with 50 jurisdictions to finalise “tax information-sharing pacts”. As of November 8, the only country to sign an agreement was the UK. US Treasury listed 47 of those still to be negotiated, saying that three wanted to be anonymous at this stage.
The 47 listed include Canada, India, Australia as well as supposed “tax havens” such as the Cayman Islands, Gibraltar and Lichtenstein. Guernsey and the Isle of Man, both UK dependencies, are not regulated by the UK and are also listed.
Notably absent from the list is China, which has not yet made its intention known. Without China’s co-operation the effectiveness of the Act may be diluted, according to a Reuters report last week.
The Australian Government and the Financial Services Council have made representations on behalf of their institutions, including super funds.
US Treasury had been hopeful of finalising the regulations before the end of the year, but this is now looking doubtful, according to the report.