The US Internal Revenue Service said financial firms subject to the Foreign Account Tax Compliance Act (FATCA) will now have until 1 January 2014 to put procedures in place to meet the bill’s reporting requirements. FATCA was originally scheduled to come into effect next year.
The private equity industry has worried how it would be able to comply with the far-reaching law since its passage in early 2010. FATCA requires foreign financial institutions (FFIs), which include non-US private equity firms with US investors, to enter into an agreement with the IRS in order to provide periodic reporting of accounts held by US taxpayers. Firms failing to comply face a hefty 30 percent withholding tax on certain payments travelling outside the US.
Legal sources say the bill’s delay is in part due to ongoing negotiations between US tax authorities and their foreign counterparts regarding FATCA “intergovernmental agreements”. To address concerns that non-US firms would be violating local privacy laws by submitting information to the IRS, the US government has sought partnerships with other countries so that information could be relayed by authorities instead of individual firms. Synchronising those agreements has proven time consuming, and some FFIs have delayed their FATCA preparations in the expectation that their home government would enter into such a partnership.
In September the UK was the first country to sign an intergovernmental agreement with the US to create bilateral tax reporting.
US Treasury was not immediately available for comment by press time.