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 (see background).
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 finalised the framework, banks in those countries would not have to enter into separate data disclosure agreements with the United States' Internal Revenue Service (IRS) tax collection agency.
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 US 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.
List of FATCA partners may grow
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.
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.
As originally drafted, FATCA will require that foreign financial institutions either collect and turn over data on US clients with accounts of at least $50,000, or withhold 30% 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% of the amount in question and heightened scrutiny by the IRS.
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 US taxpayers as clients and thus must collect and disclose information about them under FATCA.
