FATCA is just the tip of the iceberg when it comes to transparency and tax reporting standards among foreign financial institutions.
The Foreign Accounts Tax Compliance Act (FATCA) has created quite a stir in the international financial market. The law was put into effect during the middle of last year and has left a wake behind it of foreign financial institutions scrambling to understand and meet the requirements of the law. Since it was officially passed in 2010, there have been many clarifications regarding the reporting requirements and many institutions are still left wondering the best way to manage the new requirements for gathering, processing, and reporting client data.
Understanding the Trend
Although nearly 500 jurisdictions have now signed an intergovernmental agreement with the United States, some foreign financial institutions are still weighing the pros and cons of agreeing to comply. Those who fail to comply face a steep sanction of 30% withholding penalty on all U.S.-based funds transfers. However, as world-wide efforts increase to develop a standardized tax reporting process, banking institutions and individuals will need to prepare for the increase in global reporting requirements. Savvy financial managers will understand that there is a long-term shift in global information exchange at hand and may decide to put the necessary information gathering and reporting processes into place because this is simply the future of global banking.
New Global Standards
The United States has certainly started rocking the boat, but other countries will most likely follow suit. In fact, the Global Forum has recently suggested a new global standard for the Automatic Exchange of Information (AEOI) which would streamline reporting procedures for tax purposes across the world. This would affect more than just one single jurisdiction, and would make the sharing of financial information much easier for tax authorities within many different countries.
Fortune Favors the Prepared
In light of this, it would be considered a wise move for foreign financial institutions to research ways of managing the information gathering and reporting process in a flexible, cost-effective and secure way. Then, if the AEOI is adopted, the institution is already prepared to handle the subsequent reporting requirements. This would place it ahead of the competition and would reduce the cost of updated processes and systems each time a new country requires tax reporting data.
Individuals who hold foreign accounts should also consider the implications of FATCA and the AEOI. If you have not already disclosed income and assets held overseas, now is the time to prepare the proper disclosure. The United States offers multiple voluntary disclosure programs and it is best to consult your tax attorney to determine which route is the best to take for your financial situation.
About Freeman Tax Law
Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.
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