- FATCA is United States legislation which is designed to enable the IRS to obtain information about offshore accounts held by US. taxpayers.
- The Australian government is pursuing an intergovernmental agreement with the U.S. but the scope and implementation date for that agreement remains uncertain.
- Financial institutions in Australia, including fund managers, should understand the possible impact of FATCA for them and be ready for its implementation.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is U.S. legislation which was enacted in March 2010.
FATCA is designed to enable the U.S. Internal Revenue Service (IRS) to obtain information about offshore investments and accounts held by U.S. taxpayers in an effort to deter tax evasion.FATCA generally requires a foreign financial institution (FFI) to report to the IRS certain information on offshore financial accounts held by U.S. taxpayers.
A FFI that is non-compliant will generally be subject to a 30% withholding tax on U.S. sourced payments made to the FFI.
Financial institutions which are subject to FATCA include certain Australian fund managers, responsible entities and trustees.1
When is FATCA being implemented?
The FATCA legislation is being implemented in stages. In January 2013, the U.S. Department of the Treasury and the IRS issued final regulations implementing FATCA which made a number of changes including to the implementation timetable.
| Date by which IRS expected to open FFI Registration Portal | 15 July 2013 |
| Date by which FFIs should register to be published in the first list of ‘participating’ FFIs | 25 October 2013 |
| Withholding from U.S. source fixed or determinable, annual or periodical income payments begins* | 1 January 2014 |
| Withholding from U.S. source gross proceeds begins | 1 January 2017 |
| Withholding from foreign pass-thru payments begins | No earlier than 1 January 2017 |
*Certain grandfathering arrangements apply.
What do you need to do to be FATCA ready?
To be FATCA ready, responsible entities, trustees and fund managers should:
- identify whether they will be subject to FATCA and if they are, inform themselves about the implications of FATCA for them;
- continue to monitor developments including the impact of any IGA entered into by the Australian government;
- if necessary, review the investment strategies of affected funds which provide exposure to U.S. sourced income or assets;
- if relevant, determine whether to become a participating FFI and whether doing so is in the best interests of their investors; and
- where a fund manager wishes to become a participating FFI and enter into an agreement with the IRS, confirm whether any amendments are required to:
- relevant fund constitutions to facilitate entry into and compliance with the agreement; and
- fund disclosure documents and application forms.
This article was written by Matthew Farnsworth, Senior Associate and Fiona Smedley, Partner, Sydney.
Disclaimer
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