February 8, 2012 / 2:35 PM / 7 years ago

CORRECTED-UPDATE 3-US enlists 5 EU nations in offshore tax crackdown

* UK, France, Germany, Italy, Spain part of new framework
    * Treasury says governments would collect info from banks
    * Eases burden on banks, puts pressure on EU governments
    * Most FATCA rules expected to take effect in 2013

    By Lynnley Browning	
    Feb 8 (Reuters) - The U.S. Treasury Department on
Wednesday enlisted five EU nations to help crack down on
offshore tax evasion by Americans and ease the burdens the
effort has imposed on many banks and financial institutions.	
    After complaints from the global financial industry about
costs and legal issues, Treasury announced a new multilateral
approach to implementing the Foreign Account Tax Compliance Act,
or FATCA.	
    Enacted by the U.S. Congress in 2010, FATCA is intended to
help the U.S. Internal Revenue Service gather information about
Americans' accounts with more than $50,000 in assets in foreign
banks and other institutions.	
    Scheduled to take effect in 2013, the new law as drafted
calls for banks and financial institutions worldwide to gather
the information and directly disclose it to the United States'
Internal Revenue Service (IRS) tax collection agency.	
    Under Treasury's proposed "new government-to-government
framework for implementing FATCA," the governments of France,
Germany, Italy, Spain and the United Kingdom will work together
to create a means to collect the information from their banks
and send it to the United States.	
    Treasury said that once these five "FATCA partner" countries
finalized the framework, banks in those countries would not have
to enter into separate data disclosure agreements with the IRS.	
    In addition, in a reciprocating agreement, Treasury said the
United States would collect and share information with the five
participating EU countries about accounts held by their citizens
in U.S. financial institutions.	
    For nations not invited to become "FATCA partners" with the
United States, banks and financial institutions in those
countries must still cooperate on their own with the IRS.	
    Noticeably absent from the new framework were major
international banking nations such as Canada, Switzerland and
the Netherlands, not to mention tax haven jurisdictions such as
Ireland, the Cayman Islands and Bermuda. 	
    A Treasury official said in a conference call with reporters
that more countries may join the "FATCA partners" list.	
    "We've had numerous conversations with other governments
beyond the five that are cited," the official said.	
    Asked about Canada's exclusion from the list of five
countries, a senior government official with knowledge of the
matter told Reuters that the United States "was open to
exploring a similar arrangement with Canada." 	
    Canadian Finance Minister Jim Flaherty said the ministry had
raised "serious concerns" about FATCA with the United States.	
    "Today's announcement appears to demonstrate an interest in
greater joint government collaboration to address such concerns.
We will continue to work with our American counterparts towards
an approach acceptable to both our countries," he said.	
    Michael Mundaca, a co-director at Big Four accounting firm
Ernst & Young and formerly the U.S. assistant secretary for tax
policy, said: "It will be interesting to see how other countries
and especially other financial centers react."	
    Becoming a "FATCA partner" means being able to ensure
adoption of suitable disclosure laws, no easy task in countries
with bank secrecy and client confidentiality laws; getting banks
to collect and disclose data to their own national authorities;
and then transmitting that data to the United States.	
    The new multilateral framework addresses secrecy issues in
some countries that prevent banks from directly disclosing
client data to the United States, Treasury said.	
    Opting for a multilateral approach "acknowledges the
detrimental impact to the United States of the 'go it alone'
mechanism that was ... inherent in the FATCA regime," said Scott
Michel, a tax lawyer at the firm of Caplin & Drysdale. 	
    "This agreement ... will obviously provide a template for
other agreements," he said, adding that countries declining to
strike similar deals may find their own financial institutions
will face overly burdensome compliance and reporting costs.	
    As originally drafted, FATCA will require that foreign
financial institutions either collect and turn over data on U.S.
clients with accounts of at least $50,000, or withhold 30
percent of the interest, dividend and investment payments due
those clients and send the money to the IRS.	
    Foreign institutions and entities that refuse or fail to
comply would face bills for taxes due, a penalty of 40 percent
of the amount in question and heightened scrutiny by the IRS.	
    Financial institutions and intermediaries had objected that
forcing banks to track pass-through payments on syndicated
loans, swaps, foreign currency trades and routine money
transfers was unduly burdensome.	
    Pass-through payments are payments that flow through
separate legal entities on their way to the recipient.	
    Those affected by FATCA include commercial, private and
investment banks and shells and trusts; broker-dealers;
insurers; mutual, hedge and private-equity funds; domiciliary
companies; limited liability companies, partnerships; and other
intermediaries and withholding agents.	
    Treasury said it would allow foreign financial institutions
to rely on information they have already collected under
anti-money laundering and "know your customer" rules to
determine whether they have U.S. taxpayers as clients and thus
must collect and disclose information about them under FATCA.
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