FATCA impact feared wider than expected, says K&L Gates
The effects of US tax avoidance legislation will be wider than many believe, tax experts from K&L Gates have warned.
Discussions on the effects of FATCA (the Foreign Account Tax Compliance Act) have focused on banks, but custodians, investment vehicles and insurance companies will also be required to meet the requirements of the IRS, the US tax authority, or be liable for a levy on interest, dividends and gross proceeds from US assets, Mary Burke Baker and Roger Wise told delegates to a ‘Why do I still need to worry about FATCA?’ briefing.
Baker, a K&L Gates government affairs adviser who served on the US Senate Committee on Finance, and Wise, partner and federal tax adviser, said that the passing of the legislation in March 2010 was overshadowed by the complex passage of the US healthcare bill.
FATCA, which is intended to bring in additional tax revenues of $8.5bn, was designed to help pay for the $17.5bn HIRE Act. This offered US SME’s payroll tax breaks to incentivise employment. FATCA threatens to impose a 30% withholding tax on “withholdable payments” to or through foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) with more than 10% US ownership, if they fail to obtain and report information on accounts held by US citizens.
Due diligence demanded by FATCA will include electronic searches on all accounts holding over $50,000, and paper searches on all accounts holding over $1m. FATCA’s 30% levy on withholdable payments could overrule provisions of existing double-taxation treaties, such that between the US and UK or other European states.