What You Need to Know Before FATCA Goes Live
The Foreign Account Tax Compliance Act (“FATCA”), passed in an effort to prevent offshore tax abuses committed by U.S. citizens, finally goes into effect on July 1st, 2014. The past four years has seen the FATCA landscape expand considerably both in complexity and global reach.
By Rani Karnik
Yet despite the passage of time, FATCA has not paved a clear a path to follow. For example, there is little clarity on the practical applications of the rules on collateral withholding once transitional periods have ended. There’s very little information out there regarding CLO registration.
People are starting to speak up. In a joint letter to Internal Revenue Service Commissioner John Koskinen dated April 3rd, 2014, The Bank of New York Mellon, The Northern Trust Company, and the State Street Bank and Trust Company requested further postponement of the effective date of FATCA to January 1st, 2015. The authors’ primary concerns were that prematurely implementing FATCA would likely result in representational risk to both the US government and to US financial institutions, including banks’ exposure to legal clams, loss of clients from over-withholding, and IRS penalties from under-withholding.
To ease in the transition, on May 2nd, 2014, the IRS issued Notice 2014-33, granting a period of leniency in the enforcement of FATCA for calendar years 2014 and 2015. In the notice, the IRS expressed it will take into account reasonable, good-faith efforts to comply by withholding agents and FFIs before penalizing for errors during this time. This notice came unexpectedly to some, especially given the repeat public comments of U.S. officials indicating that the July 1, 2014 effective date for FATCA would not be delayed.
A word of warning to readers: the transition relief will only apply to withholding agents and FFIs that are making reasonable, good-faith efforts to comply with the law. As financial institutions gear up to comply with the law’s July 1st deadline, here’s what you need to know:
Read the full article on Law360 here.