The Foreign Account Tax Compliance Act (FATCA) is a U.S. law enacted in 2010. Its purpose is to identify foreign assets of U.S. citizens either living at home or abroad. The main driver of the law was to take action against tax evasion. The law requires that foreign banks must detect U.S. citizens and report their assets and transactions to the Internal Revenue Service.
However, the law is believed to be controversial because of several reasons. Firstly, foreign banks have been threatened with a 30% penalty on their transactions that take place in the U.S. Secondly, the U.S. itself has not kept its end of the bargain in the FATCA agreement with foreign entities. The law is to be used as a way to raise funds.
The law did not come into effect immediately. It has done so gradually. The delay has been primarily due to its complexity and probably a large number of stakeholders involved. There have been several delays which have affected the law. The IRS has been active in providing the direction over implementation of FATCA. More regulations were added to the law by the IRS in December 2016.
CHANGES AND ADDITIONS TO THE FATCA LAW
A new law is commonly amended with time due to a number of reasons. The FATCA law is no exception. FATCA has been amended several times since it was enacted in 2010. In this article, we take a look at some of the changes and additions to the law.
Agreements with foreign governments and entities
FATCA has seen the United States signing contractual agreements with at least 113 countries. These agreements stipulate that companies operating in those countries must report FATCA information to the U.S. government. The signed agreements are known as Intergovernmental agreements (IGA).
The role of IGAs is to:
Design and implement a set of principles and guidelines that exempts some residents from FATCA requirements. The guidelines also need to identify how the exempted residents will be treated under the law.
Determine the criteria which would be used to document or report account values of U.S. citizens in a foreign land.
Assist U.S. tax payers with information about the FATCA law.
Extension of FATCA deadlines.
Under the FATCA law, a sponsored entity is one that carries out FATCA duties on behalf of another. If FATCA was a tax law, sponsored entities would be tax preparers. Sponsored entities are required by law to have their Global Intermediary Identification Number (GIIN) by March 31, 2017. Those who do not comply will be levied a 30% penalty by withholding agents.
Gross proceeds reporting
The FATCA law was amended to address gross proceeds and their payment. Any person selling property that can result in the U.S. receiving some income has to pay a portion of the gross proceeds. The new amendment was set to be effective starting from January 1, 2017. Due to a delay by IRS, the new amendment will only take effect starting from January 1, 2019.
This is how some terms are defined under the FATCA law
Gross proceeds – an amount one receives after selling or disposing of properties.
Property – it is a property that earns interest or dividends which the U.S. can benefit from.