Taiwanese FATCA Pact Expected In June
Taiwan’s Financial Supervisory Commission (FSC) has confirmed that it expects to conclude an intergovernmental agreement (IGA) with the United States regarding the Foreign Account Tax Compliance Act (FATCA) by the end of June this year.
FATCA, enacted by the US Congress in 2010 and due to take effect on July 1, 2014, is intended to ensure that the US Internal Revenue Service (IRS) obtains information on financial accounts provided by foreign financial institutions (FFIs) for US persons. Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.
To address situations where foreign law would prevent an FFI from complying with the Act, the US Treasury has developed model IGAs. Under the terms of the Model 2 IGA, which it is believed Taiwan and the US are negotiating, financial institutions in Taiwan will still need to register and conclude separate individual agreements with the IRS.
Under these agreements, institutions will have to seek consent from their US account holders to report their account information to the IRS annually. However, the agreements will be supplemented, within the IGA, by the exchange of information on relevant US taxpayers at the government level on an as needed basis upon request.
Previously, concerns were being expressed that Taiwanese banks could be left with compliance problems if the Government was unable to conclude an IGA in earnest.
While financial institutions in Taiwan will still need to have the appropriate procedures and systems in place for FATCA compliance, the FSC’s announcement of an expected positive conclusion to negotiations on an IGA, which would be signed eventually by the Taipei Economic and Cultural Representative Office in the US and the American Institute in Taiwan, has therefore been welcomed.