Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) is a deeply ominous program, because its overriding assumption is that the US can tell other countries around the world and their banks how to do business with US citizens. FATCA represents a huge step forward in terms of US insistence regarding its graduated income tax program. Despite congressional calls for repeal of the US's inefficient, wasteful and repressive taxing system, Congress itself, via the IRS, is expanding the program to the WHOLE WORLD.
In a couple of years' time the US will insist that banks around the world withhold up to one-third of the funds they receive in accounts for US nationals and turn them over to the IRS. This withholding would take place if the US national himself is not providing to the IRS the requisite taxes and information.
FATCA is an example of unlimited US power. FATCA is also a comment on US citizens and their rights. What the US government is telling its citizens is that the government unilaterally has a right to pursue citizens and enlist other countries (and banks) to enforce US laws.
According to IRS press releases, the FATCA targets noncompliance by US taxpayers through foreign accounts. Under the notice's phased implementation approach, foreign financial institutions (FFIs) and US withholding agents are given adequate time to build the systems needed to fully comply with FATCA.
FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:
• Identify US accounts,
• report certain information to the IRS regarding US accounts, and
• withhold a 30 percent tax on certain payments to non-participating FFIs and account holders who are unwilling to provide the required information.
FFIs that do not enter into an agreement with the IRS will be subject to withholding on certain types of payments, including US source interest and dividends, gross proceeds from the disposition of US securities and passthru payments.
An FFI must enter an agreement with the IRS by June 30, 2013 to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
Withholding on US source dividends and interest paid to non-participating FFIs will begin on Jan. 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on Jan. 1, 2015.
Due diligence requirements for identifying new and pre-existing US accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014.
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