Pakistan Warns Banks To Register For FATCA
Because of a delay in the negotiation of an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA), the State Bank of Pakistan (SBP) advised Pakistani financial institutions, as a precaution, to complete registration with the United States Internal Revenue Service (IRS) by May 5, 2014, at the latest.
In a circular, while the SBP confirmed that the Government remains in touch with the US authorities to conclude an IGA, and any change in the status of the IGA talks will be shared with the country’s financial institutions as and when it happens, it was said that its directive should avoid any negative consequences arising from their possible non-compliance with FATCA regulations after they take effect on July 1, 2104.
Under FATCA, failure by a foreign financial institution to register with the the IRS and disclose information on its US clients would result in a requirement to withhold 30 percent tax on its receipts of US-sourced income.
The SBP also noted that, if a Pakistani institution should decide not to register because it, for example, only has a local client base or if it does not receive any US-sourced withholdable payments, it should do so only on the basis of a specific approval from its board of directors, which should be submitted to the SBP.
In addition, the SBP requested all institutions to take all necessary due diligence measures, including the identification of pre-existing accounts of US persons, and the consent of such US persons (for both pre-existing accounts of US persons as well as accounts of any new customers) to share their information with the US tax authorities.
Reports of action in these matters should be submitted to the SBP by May 10, 2014.
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