The Foreign Account Tax Compliance Act (FATCA) aims to curb tax avoidance by making foreign players in the financial market obliged to identify, document and annually report information about American customers and their assets to the USA’s Internal Revenue Service (IRS).
Securities companies and investment companies are, in principle, within the scope of the regulations as far as they execute handle transactions in relation to a client’s assets. The fundamental purpose of FATCA is to gain control over financial transactions conducted by individuals liable for tax in the USA, it is reasonable to suppose that the fact that a company receives customer’s assets within its business implies that reportable transactions arise.
Financial institutes who are affected by the regulations will need to enter into an agreement with IRS, governing their annual obligation to report information on “US accounts” . The deadline for such agreements with IRS has been set to July 1, 2014, provided of course that the company concerned falls within the scope of the regulations.
Negotiations are currently under way between Sweden, represented by the Ministry of Finance, and the USA on an intergovernmental agreement (IGA), which is expected to clarify which measures will need to be taken by Swedish financial institutes. The expectation is that the agreement will be signed in the first quarter of 2014. By signing the IGA, Sweden will be regarded as a “FATCA Partner” and as such enjoy a number of simplifications.
One anticipated simplification is that Skatteverket (the Swedish Tax Authority), and not the IRS, will be the institution’s counterpart for information reporting. Several financial products are also anticipated to be excluded from the duty of information reporting, for instance certain pension products.
However, even if the IGA is not in place, companies that falls within the scope of FATCA should carry out preparatory measures to determine whether any such accounts exist or may be expected to come into being that would involve a duty of information reporting, and to enable information reporting routines to be introduced more quickly in such cases.