The United States has signed up France, Germany, Italy, Spain and the UK to a joint plan to implement tax evasion rules contained in the Foreign Account Tax Compliance Act (Fatca).
Enacted by US Congress in 2010, the law calls for foreign financial institutions, such as asset managers, to send information directly to the Internal Revenue Service (IRS) about any American account holders with assets of more than $50,000.
Many affected firms have complained about the cost of gathering this information and warned that such reporting might violate local privacy laws.
The new statement attempts a compromise by proposing that partner countries gather the information from local firms on behalf of the IRS, so that individual companies do not have to report directly to the US tax authorities. The statement also suggests that some financial institutions could be deemed compliant or presenting a low risk of tax evasion.
Accounting giant KPMG said the proposals could cut the Fatca implementation cost by $10 billion (€7.5 billion). However, the firm's estimates suggest Fatca will still cost the industry more than it is likely to raise for the IRS.
The Investment Management Association (IMA) said the statement was a positive development.
“On initial review the draft regulations take into account the IMA’s lobbying by providing a special exemption for regulated investment funds where the distributors of the fund comply with certain criteria,” it said.
Financial advisory firm Kinetic Partners added that the amendments would “no doubt relieve some of the administrative demands currently facing foreign financial institutions and may soften the necessary procedural change required in institutions”.
But the amended rules still leave many questions. Several countries with major financial centres are conspicuously absent from the statement, such as Switzerland, the Netherlands, Ireland and the Cayman Islands. And legal experts warn that the intergovernmental nature of the proposals would create extra hurdles, and would seem to require partner nations to enact domestic quasi-Fatca legislation in parallel with the US rules.
Some commentators see more burdensome regulations on the horizon.
“Waiting on the finery is not an option. We are certain that these regulations will become more and more granular and demanding,” said Jim Muir, director of data management firm AutoRek.
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