US unlikely to meet new FATCA deadline, warns EFAMA
US authorities could yet struggle to meet the delayed FATCA deadline, the European Fund and Asset Management Association (EFAMA) has warned.
The Internal Revenue Service (IRS) is currently negotiating intergovernmental agreements (IGAs) with 50 countries. The UK, Denmark and Mexico are so far the only countries to announce they have signed up to IGAs.
“US authorities are dependent on authorities in signatory partner countries to implement the IGAs into national law, and this could take time. The UK, which was the first signatory, is planning to transpose the IGA into national law in summer 2013. There is an obvious challenge to the January 1, 2014 timeline given the number of countries in bilateral talks and the time needed for national legislation procedures,” said Jon Griffin, chairman of the FATCA working group at EFAMA and managing director at J.P. Morgan Asset Management in Luxembourg.
There are currently three IGA models circulating which countries can sign up to. Those that do not acquiesce to an IGA will be subject to full FATCA regardless. However, Griffin believed the US would launch a multilateral IGA. “The question is how many more bilateral agreements will it take before the US authorities and foreign governments consider a multilateral IGA approach,” he said.
It was announced in October 2012 that the IRS was delaying FATCA by one year to give foreign financial institutions (FFIs) more time to conduct due diligence on underlying clients and establish systems and technology to enable the collection and collation of data, as well as the ability to withhold taxes from recalcitrant clients. However, delays have been exacerbated by disagreements between third countries and the US, as well as the ongoing negotiations over IGAs.
Nonetheless, there is speculation FATCA could serve as a launch-pad for other countries attempting to clamp down on tax evasion. “At least some of the IGA partner countries are reported to be considering sharing FATCA-type information among each other. I would expect they will need to pass some sort of legislation to do that – perhaps it would be part of the enabling legislation they need to pass anyway to implement the IGAs,” said one Washington DC-based lawyer.
Griffin also reiterated concerns about managers operating out of multiple jurisdictions, some of which will have signed different IGAs with the US. These managers will be forced to operate and adjust to multiple IGAs leading to additional costs. “There will be issues for cross border fund distribution players who will have to be aware of IGAs in each of the jurisdictions in which they operate in,” said Griffin.