Australia signs FATCA agreement
Australia has signed an intergovernmental agreement (IGA) with the US in order to “reduce the burden” on financial institutions when complying with FATCA.
Australian treasurer Joe Hockey said the IGA will “minimise costs” by simplifying due diligence requirements, as well as broadening arrangements between the Australian Tax Office and the US Internal Revenue Service (IRS).
In a statement, he said: “The IGA will also improve existing tax information-sharing arrangements between Australia and the US, for the purpose of preventing tax evasion.
“This will help to enhance the integrity of both countries’ tax systems.”
The Australian government will introduce legislation to bring the IGA into effect as soon as practicable after a public consultation on the draft legislation.
FATCA is part of the US Hiring Incentives to Restore Employment Act. It ensures that US persons, wherever they are located and in whatever investment vehicle they hold their assets, are paying the correct amount of US tax.
It requires foreign financial advisers to report information to the IRS about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.
When the act comes into force, those who are not compliant will suffer a 30% withholding tax on income and gross proceeds.
An IGA makes it easier for partner countries to comply with the provisions under FATCA. The benefits of an IGA include relaxation of deadlines and increased clarity and simplicity around due diligence with country specific provisions.
For a comparison between the IGA model one and two click here.
The Financial Services Council (FSC) also supported the IGA in a statement issued yesterday.
FSC chief executive John Brogden said: “The FATCA IGA is a positive outcome from many months of consultation between Australian Treasury and the US government.
“Treasury has worked closely with the US government to get this IGA signed. It is significant for the financial services industry in reducing red tape and will save hundreds of millions of dollars in compliance costs.”
Last week, the US Treasury Department added Bulgaria, Colombia and Cyprus to its list of jurisdictions to have reached FATCA Model 1 intergovernmental agreements.
It said the countries had agreed “in substance” to be included on the list.
As reported, foreign financial advisers have until 5 May to register with the IRS for a Globa Intermdiary Indentification Number (GIIN), a unique identifier that will be used by FIs to show compliance following FATCAs implementation.
Obtaining a GIIN will ensure an foreign financial adviser’s appearance on the IRS’s first ever list of FATCA compliant companies, to be issued on 2 June.
Andy Thompson, director of operations at the Wealth Management Association (formally APCIMS) said: “I expect that bigger institutions would want to be on the list just to show that they are compliant.
“There are going to be hundreds of thousands of applications to FATCA so it will be interesting to see who signs up and whether the application process will be able to cope.”