* Foreign pension, mutual funds are spared brunt of rules
* US rebuffs companies' push for penalty delay
* Norway newest country signing tax pact with U.S.
By Patrick Temple-West
WASHINGTON, Jan 17 Non-U.S. pension funds and
mutual funds were spared the full brunt of new U.S.
information-reporting rules on overseas accounts meant to catch
Americans who dodge U.S. taxes by keeping their assets offshore.
Chiefly targeting banks, the Foreign Account Tax Compliance
Act (FATCA) rules, published by the U.S. Treasury on Thursday,
require foreign financial institutions with $50,000 of any
American taxpayer's assets to report the holdings to the U.S.
Internal Revenue Service.
The Treasury rejected a request by businesses, banks and
foreign investment funds to delay a January 2014 start date for
big penalties imposed on individuals and financial firms that do
not comply with the law.
The announcement completes the rule-writing process for
FATCA, a law that Congress passed in March 2010 after a Swiss
bank scandal revealed that U.S. taxpayers had hidden millions of
dollars overseas from the IRS.
Certain retirement funds, life insurance and other
"low-risk" financial products held abroad, which are not
considered havens for dodging taxes, are exempted from reporting
their U.S. account holders' information to the IRS. Financial
firms and foreign governments had been calling for these
The law, the first of its kind globally, has been decried by
companies and U.S.-ally countries as unilateral, over-reaching
and a breach of privacy. U.S. law requires that Americans pay
taxes on their global income, not just domestic.
Treasury officials are hoping to sign up more than 50
countries with FATCA agreements and kick-start a dragnet of tax
"The real story here is that looks like it is going
to become a global model," Manal Corwin, deputy assistant
Treasury secretary for international tax affairs, told Reuters
in an interview.
Companies affected by the new rules, including BlackRock
, Western Union and Prudential, may spend
more than $100 million each to comply with the law. Some firms
are asking Treasury for additional time to prepare.
Financial institutions that refuse to comply with the law
will be effectively shut out of U.S. securities markets.
The businesses must report to the IRS - in English - account
holders' names, addresses, account balances plus dividends and
interest. The first reports are due in 2015.
The roughly 500 pages of final rules, which were initially
proposed in February 2012, give breathing room to some asset
managers, such as mutual funds, for how they need to report
The rules also incorporate the government-to-government
agreements Treasury has been signing with countries to get their
local firms compliant with the law. Norway became the seventh
country to forge an agreement, Treasury said on Thursday.
Soon after Congress passed FATCA, Treasury officials
surmised the law could not be broadly implemented as intended.
Too many foreign firms would be breaking domestic laws by
reporting client information to the IRS.
The government agreements offer a workaround. The United
Kingdom, Mexico, Denmark, Ireland, Switzerland and Spain are
finalizing FATCA agreements.
Though the pacts help firms comply with FATCA, they have
added new headaches for some international companies.
"FATCA's scope is being expanded because Treasury is trying
to close every hole," said Harris Horowitz, the global head of
tax at BlackRock, which has more than 50 people working on FATCA
With the government agreements, FATCA "has turned more
onerous," he said.
Some of the agreements include a reciprocal
information-sharing provision, under which the IRS will deliver
taxpayer information to a foreign government about its citizens
living in the United States.
This reciprocal provision has raised privacy concerns,
specifically with the Mexico agreement, signed in November.
Corwin said Treasury vetted the Mexican tax-collecting
agency and checked with other U.S. agencies that share sensitive
information with Mexico before signing the deal.
Foreign financial firms may be spared FATCA penalties next
year if their native government is on the verge of signing a
FATCA agreement, Corwin said.
Firms have been waiting for the final rules to finish their
preparations, said Ellen Zimiles, a managing director for
consulting firm Navigant. Firms may still get relief on the
penalty start date as the deadline approaches, she said.
"It's always a little game of chicken" between Treasury and
businesses, Zimiles said.