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Deadline postponed for mandatory reporting on Americans with foreign bank accounts

Deadline postponed for mandatory reporting on Americans with foreign bank accounts
The US Treasury Department recently announced that it will extend the deadline to compel foreign banks to provide detailed information on US account holders overseas by six months.

The US Foreign Account Tax Compliance Act, or FATCA, was signed into law in 2010, and it requires financial institutions outside of the country to report the account information of potential tax evaders directly to the IRS.

The teeth of the FATCA, legislation lie in potential penalties levied against foreign banks that fail to report on the six million US citizens that live abroad. Specifically, institutions that are found to be noncompliant would face a 30 per cent withholding tax on securities transactions originating in the US.

Critics argue that the legislation overreaches, both by potentially violating privacy laws in other countries, as well as including American nationals that might owe no US taxes, own no property in the US and may not have lived in the US in decades, if at all.

The financial industry, meanwhile, has slammed the new law as too costly, reports the Wall Street Journal.

FATCA was set to be enacted in January 1 of 2014, though last Friday the Treasury said that due to a “groundswell of international interest,” it will extend for six months to July 1, 2014 the deadline to comply with a law targeting potential tax cheats stashing money overseas.

According to Forbes, in order to avoid the withholding penalty a foreign bank must enter into an agreement with the IRS to identify accounts held by US citizens and report certain information to the agency.

In order for countries to comply with the American law, Treasury developed what it calls intergovernmental agreements that streamline the process of reporting tax information. Treasury said Friday it has signed nine of them thus far with other countries, and is engaged in talks with more than 80 other jurisdictions.

As of late 2012, the Treasury department had announced that it was in “active dialogue” with a long list of countries around the world to target US nationals with foreign financial assets exceeding $50,000.

So far, European countries in particular seem to support the idea of FATCA as a global standard to expose offshore tax havens. In April, six European finance ministers pledged to exchange more data about tax evasion. It is likely that countries enthusiastic about the new US legislation are interested in the reciprocity agreements being offered by the Treasury, which would allow foreign governments to monitor the holdings of their own citizens abroad.

The agreements being reached by the Treasury on behalf of the US have not been popular with everyone, however. In a July letter to Treasury Secretary Jacob Lew sent by US Congressman Bill Posey, the legislator alleged that the Treasury had exceeded its own authority by promising that American financial institutions would be reporting to foreign countries.

Posey has already introduced legislation (HR 2299) to abolish Treasury rules requiring reporting to foreign nations, arguing that they would “discourage investment in the United States” and “further impose costly compliance costs on American banks and credit unions” that might well carry over those expenses to their depositors.

Of particular interest are jurisdictions such as the British Virgin Islands, the Cayman Islands and Switzerland, all popular with both Americans and Europeans seeking to store their wealth offshore.