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In March 2010, the U.S. enacted the Foreign Account Tax Compliance Act (FATCA), which will impose significant reporting requirements on "Foreign Financial Institutions" (FFIs) from 1 January 2013. This legislation is a reaction to concerns that wealthy U.S. citizens are not disclosing funds held in "offshore" tax-haven accounts.
FATCA will require all FFIs worldwide to identify U.S. account holders and report their banking details to the U.S. Internal Revenue Service. If an FFI does not comply with the new reporting requirements a 30% U.S. withholding will be applied to all their income and gross proceeds received from U.S. sources.
The Australian Bankers’ Association (ABA) and its member banks acknowledge the objectives of FATCA in preventing U.S. taxpayers from evading taxation by hiding their funds and foreign investment income in accounts outside the United States. The ABA has been engaging with relevant authorities in both the U.S. and Australia on FATCA in order to minimise the potential compliance burden and impact on banks’ customers located in Australia.
Although several guidance notices have been issued on FATCA, the U.S. Treasury and IRS are still formulating the regulations. Draft regulations are not due to be issued until 31 December 2011 and may still change after this date.
There have been two guidance notices released in recent months which have provided revised approaches on a number of matters, including timing. In light of continuing developments on FATCA, there is no certainty at this time about how FATCA will apply.
ABA members are conscious of the need to minimise the impact on customers from implementation of FATCA. However, in the absence of final regulations, the ABA’s member banks generally consider that it would be premature to make definitive statements about impacts and any compliance arrangements.
Please see further information from U.S. IRS on FATCA.