US Treasury updates FATCA rules to ease burden

The US Treasury today issued updated proposals designed to fight offshore tax evasion.

It said some foreign countries could comply with the Foreign Account Tax Compliance Act (FATCA) regulations by collecting required financial data and forwarding it to US authorities.

Under its original proposals, financial institutions, not their governments, were tasked with collecting and reporting the data.

FATCA requires new disclosures to the US Internal Revenue Service about where offshore accounts are held by US clients.

It will force individual investors in funds holding any US assets to prove they are not US citizens or face a 30% witholding tax on US-sourced returns.

Those affected by the rules include private and investment banks, broker-dealers; insurers; mutual and hedge funds; limited liability companies and partnerships; plus other intermediaries and withholding agents.

The rules, which are expected to be rolled out next year, have attracted sharp criticism from banks and other financial groups worldwide over costs and legal issues.

Under the Treasury's latest move to implement FATCA, it said the nations of France, Germany, Italy, Spain and the UK will be allowed to collect information on financial accounts covered under FATCA and forward that information to the US.

"These regulations implement FATCA in a way that is targeted and efficient," said acting assistant US Secretary for Tax Policy, Emily McMahon.

In the UK, HM Treasury and the Investment Management Association (IMA) have both been pressuring the US to consider exemptions to the stringent rules, whether through a local exemption or a carve-out for low-risk institutions.

A Treasury source said last month the difficulties in implementing FATCA are considerable, as the legislation goes further than anything the UK has had to deal with before.

Originally set to come into force in January 2013, certain aspects of FATCA have been postponed until 2014 and 2015. FFIs, including banks and asset managers, will have to register with the IRS by June 2013.