This article is for US taxpayers everywhere, including Israel.
The US
Treasury recently announced it is engaged with more than 50 countries and
jurisdictions, including Israel, to implement the information reporting and
withholding tax provisions commonly known as the Foreign Account Tax Compliance
Act (FATCA).
“Global cooperation is critical to implementing FATCA in a
way that is targeted and efficient,” Assistant Secretary of the Treasury for Tax
Policy Mark Mazur said. “By working cooperatively with foreign governments and
financial institutions, we are intensifying our ability to combat tax evasion
while minimizing burdens on financial institutions.”
This summer, the US
Treasury published a model intergovernmental agreement for implementing FATCA
and announced the development of a second model agreement. These models serve as
the basis for concluding bilateral agreements with interested
jurisdictions.
The Treasury Department has already concluded a bilateral
agreement with the United Kingdom.
Jurisdictions with which the US
Treasury is actively engaged in a dialogue toward concluding an
intergovernmental agreement include Israel, Argentina, Australia, Belgium, the
Cayman Islands, Cyprus, Estonia, Hungary, Korea, Liechtenstein, Malaysia, Malta,
New Zealand, the Slovak Republic, Singapore and Sweden. Additional jurisdictions
with which the US Treasury is in the process of finalizing an intergovernmental
agreement include France, Germany, Italy, Spain, Japan, Switzerland, Canada,
Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the
Netherlands and Norway.
The jurisdictions with which the US Treasury is
working to explore options for intergovernmental engagement include Bermuda,
Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India,
Lebanon, Luxembourg, Romania, Russia, Seychelles, Saint Maarten, Slovenia and
South Africa.
Summary of key FATCA provisions
According to the US
Internal Revenue Service (IRS), FATCA, which was enacted in 2010 as part of the
Hiring Incentives to Restore Employment (HIRE) Act, is an important development
in US efforts to combat tax evasion by US persons holding investments in
offshore accounts.
Under FATCA, certain US taxpayers holding financial
assets outside the US must report those assets to the IRS. In addition, FATCA
will require foreign financial institutions to report directly to the IRS
certain information about financial accounts held by US taxpayers, or by foreign
entities in which US taxpayers hold a substantial ownership
interest.
Reporting by US taxpayers holding foreign financial assets
According to the IRS, FATCA requires certain US taxpayers holding foreign
financial assets with an aggregate value exceeding $50,000 to report certain
information about those assets on a new form (Form 8938) that must be attached
to the taxpayer’s annual tax return. Reporting applies for assets held in
taxable years beginning after March 18, 2010. For most taxpayers this will be
the 2011 tax return they should have filed during the 2012 tax-filing season.
Failure to report foreign financial assets on Form 8938 will result in a penalty
of $10,000 (and a penalty up to $50,000 for continued failure after IRS
notification).
Underpayments of tax attributable to non-disclosed foreign
financial assets will be subject to an additional substantial understatement
penalty of 40 percent.
In addition, US taxpayers with a financial
interest in, or signature authority over, a foreign financial account, including
a bank account, brokerage account, mutual fund, trust or other type of foreign
financial account, the Bank Secrecy Act may be required to report the account
yearly to the IRS by filing Form TD F 90- 22.1, Report of Foreign Bank and
Financial Accounts (FBAR).
US persons (citizens, green-card holders) are
required to file an FBAR if: (1) the person had a financial interest in or
signature authority over at least one financial account located outside of the
US; and (2) the aggregate value of all foreign financial accounts exceeded
$10,000 at any time during the calendar year being reported. Penalties for
noncompliance include civil penalties of $10,000 per year for non-willful
violations; up to 50% of the aggregate account value, per year, for willful
violations.
Reporting by foreign financial institutions
FATCA will also
require foreign financial institutions (FFIs) to report directly to the IRS
certain information about financial accounts held by US taxpayers, or by foreign
entities in which US taxpayers hold a substantial ownership
interest.
Withholding agents, including participating FFIs, generally
will be required to implement new account-opening procedures by January 1, 2014.
To comply with these new reporting requirements, an FFI will have to enter into
a special agreement with the IRS by June 30, 2013. Under this agreement a
“participating” FFI will be obligated to: (1) undertake certain identification
and due-diligence procedures with respect to its account holders; (2) report
annually to the IRS on its account holders who are US persons or foreign
entities with substantial US ownership; and (3) withhold and pay over to the IRS
30% of any payments of US source income, as well as gross proceeds from the sale
of securities that generate US source income, made to (a) nonparticipating FFIs,
(b) individual account holders failing to provide sufficient information to
determine whether or not they are a US person, or (c) foreign entity account
holders failing to provide sufficient information about the identity of its
substantial US owners.
There will be a phased-in time line of key FATCA
implementation dates for FFIs.
The above is a very brief summary from
recent IRS announcements.
As always, consult experienced tax advisers in
each country at an early stage in specific cases.
leon@hcat.co Leon
Harris is a certified public accountant and tax specialist at Harris Consulting
& Tax Ltd.
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