The difficulty, they said, is that the regulations will have to stay true to the intentions of the Foreign Account Tax Compliance Act as it was voted on by US lawmakers and signed off on by President Obama in 2010. So although there may be a widespread agreement that FATCA will be difficult to comply with, they note, there is little in practice that can actually be done that would not stand a high chance of creating potential loopholes to get around it.
What is more, no one had, until a few days ago, been aware that the US was reportedly talking about narrowing its FATCA enforcement focus to high-risk targets.
As reported, various media organisations have recently reported that the US was planning to lighten up on the extent to which it plans to enforce FATCA , citing remarks made last week to a New York State Bar Association meeting by acting assistant secretary for Tax Policy, Emily McMahon. The remarks came as financial services industry officials around the world have been waiting, impatiently, for the final batch of guidance on the regulations their institutions may expect to have to comply with beginning on 1 Jan 2013. The final version of the regulations is due to be published in the summer, according to the IRS.
FATCA was enacted as part of an ongoing US effort to crack down on tax evasion through the use of overseas bank accounts and financial institutions.
"We thought [we were going to get the final guidance on FATCA] this week," said Peter De Proft, director general of the European Fund and Asset Management Association. "All our FATCA working group meetings have been cancelled, and are due to start again, as soon as they come out. But we’ve been waiting now for the last month."
De Proft said EFAMA officials had no knowledge, beyond what they have read in the press recently, about possible US plans to take a more focused approach to FATCA. "We’ve been talking for two years and have had a very constructive dialog, and we are hoping it will go that way, but we have not got any [special] insight."
Withers, the international law firm, has been monitoring the progress of FATCA since before it was passed. Jay Rubinstein, a Zurich-based partner, said he believed the US would "try [to make it easier for foreign financial institutions to comply with FATCA] to the extent that they can, and to the extent that it seems like a commercial thing to do".
“But on the other hand, they don’t want to leave any holes that would allow US people to be able to invest overseas and not be detected,” he added.
Rubinstein said he also had no insider insight into the thinking of the Internal Revenue Service, as it seeks to produce the guidance non-US banks, wealth managers, insurance companies, funds, trust companies and other foreign financial institutions will need to comply with it. What seems clear, though, he believes, is that compliance will be easier for some organisations than others.
“I think banks are more used to having to deal with this kind of compliance, although it is getting more difficult and expensive, as they have had this QI [Qualified Intermediary regime, a set of US rules aimed at ensuring US source income paid to non-US recipients is taxed at the correct US rate] to deal with for the past 10 years.
“But trust companies, insurance companies and funds are new cast members to this FFI regime, and the guidance we have had so far hasn’t been explicit as to how it’s going to work for them, so they’ve been in a state of limbo all this time. So it will be interesting to see if the guidance [currently expected to be unveiled] will address those institutions.”
The American Citizens Abroad, a Geneva-based organisation representing expatriates, is also sceptical that the US authorities will be looking to make life significantly easier for foreign financial institutions.
"ACA has seen reports in the media citing the near-to-impossible task of implementing FATCA as it currently exists, and the IRS/Treasury’s promises to reconsider the implementation,” a spokeswoman for the organisation, which has been campaigning for FATCA’s repeal, said.
“It is hard to predict the IRS and Treasury; however, ACA does believe that due to the exceedingly difficult task of implement, the IRS is interested in making some compromises and concessions.
"[Nevertheless], ACA has yet to see any concrete evidence of changes to the implementation of the legislation. Most of the reports from IRS and Treasury indicate that they are ‘looking into’ a variety of options (removing pension plans, etc).
“ACA does believe that all the press on FATCA and the IRS/Treasury’s responses are positive as it demonstrates that there are serious problems with the legislation and that Washington, the financial sector and foreign governments are putting pressure on the issue."