FATCA Causes First Russian Bank To Cut US Clients
With Russia unlikely to be able to conclude a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement (IGA) with the United States in the foreseeable future, and subject to the country’s current law on tax information exchange, VTB has become the first Russian bank to disclose that it is reducing its services to American clients.
FATCA, enacted by Congress in 2010 and taking effect on July 1, 2014, is intended to ensure that the US obtains information on accounts held at foreign financial institutions (FFIs) by 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 terms of an FFI agreement, US Treasury has developed model IGAs. However, Russia is among the jurisdictions that have not yet negotiated an IGA, and, given the political situation in Ukraine, it appears that talks on concluding an agreement have been suspended.
While Russian FFIs (except for those that are already the subject of US sanctions) have still been able to register with the Internal Revenue Service (IRS), it is also apparent that, unless there is a change in Russian legal provisions, they will not be able to share information directly with the IRS or to withhold tax.
In that situation, it has been disclosed by VTB, Russia’s second largest banking group with around 2,000 US clients, that, while it has registered with the IRS and is ready to comply with FATCA requirements, it has also ceased to deal with new, and will gradually wind down its operations with existing, American clients.
It is said that, as VTB has the largest operation in the US of the major Russian banks, it has had to minimize its exposure risks as far as possible, as prospective changes to Russian law may still not be sufficient to allow banks to share account holders information.
– See more at: http://www.tax-news.com/news/FATCA_Causes_First_Russian_Bank_To_Cut_US_Clients____64934.html#sthash.LKMqSlJ6.dpuf