29 Apr 14 FATCA - Tax compliance agreement signed with USA
On 28 April 2014 the governments of Australia and the United States of America signed an intergovernmental agreement to reduce the burden on Australian financial institutions in complying with the United States’ Foreign Account Tax Compliance Act (FATCA): Treasurer's media release (28 April 2014). The agreement is entitled Agreement between the Government of Australia and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA.
The Australian Treasury has also released, for comment by Friday, 9 May 2014, draft legislation to implement Australia’s obligations under the agreement.
FATCA is an information-reporting regime that was enacted by the United States in March 2010 to detect US taxpayers who use accounts with offshore financial institutions to conceal income from the US Internal Revenue Service. It will commence on 1 July 2014.
The agreement has the status of a treaty. Together with relevant enabling legislation, it will establish a framework to assist Australian financial institutions in reporting certain financial account information required by FATCA. It is intended to reduce the overall burden on Australian business, minimise costs by simplifying due diligence requirements and broaden arrangements between the ATO and the US Internal Revenue Service.
The agreement will also improve existing tax information-sharing arrangements between Australia and the United States, for the purpose of preventing tax evasion.
A broad range of Australian financial institutions, including banks, some building societies and credit unions, specified life insurance companies, private equity funds, managed funds, exchange traded funds and some brokers will be subject to FATCA. Financial institutions that do not comply with FATCA will be subject to a 30% US withholding tax on their US source income. As most major Australian financial institutions operate or otherwise invest in the United States, the US withholding tax creates a strong commercial incentive for these entities to comply with FATCA.
With effect from 1 July 2014, the proposed amendments embodied in the draft legislation will require Australian financial institutions to collect information about their customers who are likely to be taxpayers in the United States and to provide that information to the Commissioner of Taxation who will, in turn, provide that information to the US Internal Revenue Service.
For the full texts of the proposed amending Bill and its Explanatory Memorandum, and information on how to make a submission, go here.