The US Treasury Department on Wednesday enlisted five EU nations to help crack down on offshore tax evasion by Americans and ease the burdens the effort has imposed on many banks and financial institutions. After complaints from the global financial industry about costs and legal issues, Treasury announced a new multilateral approach to implementing the Foreign Account Tax Compliance Act, or FATCA.
Enacted by the US Congress in 2010, FATCA is intended to help the US Internal Revenue Service gather information about Americans' accounts with more than $50,000 in assets in foreign banks and other institutions. Scheduled to take effect in 2013, the new law as drafted calls for banks and financial institutions world-wide to gather the information and directly disclose it to the United States' Internal Revenue Service (IRS) tax collection agency. Under Treasury's proposed "new government-to-government framework for implementing FATCA," the governments of France, Germany, Italy, Spain and the United Kingdom will work together to create a means to collect the information from their banks and send it to the United States.
Treasury said that once these five "FATCA partner" countries finalised the framework, banks in those countries would not have to enter into separate data disclosure agreements with the IRS. In addition, in a reciprocating agreement, Treasury said the United States would collect and share information with the five participating EU countries about accounts held by their citizens in US financial institutions.
For nations not invited to become "FATCA partners" with the United States, banks and financial institutions in those countries must still cooperate on their own with the IRS. Noticeably absent from the new framework were major international banking nations such as Canada, Switzerland and the Netherlands, not to mention tax haven jurisdictions such as Ireland, the Cayman Islands and Bermuda.
A Treasury official said in a conference call with reporters that more countries may join the "FATCA partners" list. "We've had numerous conversations with other governments beyond the five that are cited," the official said. Asked about Canada's exclusion from the list of five countries, a senior government official with knowledge of the matter told Reuters that the United States "was open to exploring a similar arrangement with Canada."
Canadian Finance Minister Jim Flaherty said the ministry had raised "serious concerns" about FATCA with the United States. "Today's announcement appears to demonstrate an interest in greater joint government collaboration to address such concerns. We will continue to work with our American counterparts towards an approach acceptable to both our countries," he said.
Michael Mundaca, a co-director at Big Four accounting firm Ernst & Young and former deputy assistant secretary for tax policy, said: "It will be interesting to see how other countries and especially other financial centers react." Becoming a "FATCA partner" means being able to ensure adoption of suitable disclosure laws, no easy task in countries with bank secrecy and client confidentiality laws ; getting banks to collect and disclose data to their own national authorities; and then transmitting that data to the United States. The new multilateral framework addresses secrecy issues in some countries that prevent banks from directly disclosing client data to the United States, Treasury said.
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