FATCA: Five EU states work out compromise with Washington
By Tanguy Verhoosel | Thursday 09 February 2012
The European Commission welcomed, on the evening of 8 February, the compromise that five EU member states (France, Germany, the United Kingdom, Italy and Spain) worked out with the United States on combating tax evasion. It is expected to help ease the administrative burden on their financial institutions from 1 January 2013, when the US Foreign Account Tax Compliance Act (FATCA) enters into force.
The US Treasury Department published, on 8 February, a joint statement by Washington, Paris, Berlin, London, Rome and Madrid “regarding an intergovernmental approach to improving international tax compliance and implementing FATCA”. It aims to ease the substantial obligations that will be imposed on European financial institutions when the US law enters into force, on 1 January 2013, and to establish as a dogma the automatic exchange of information between tax administrations.
Provided a definitive agreement follows the “possible framework for an intergovernmental approach,” the financial institutions from the five EU states would no longer have to conclude individual agreements with the US tax administration (IRS), nor transmit to it the required information on the assets of US taxpayers that they manage, failing which they would have to pay financial penalties.
The information will be collected by the tax administrations of Washington’s five new “partners,” which will report them directly to the IRS “automatically”. The United States will do the same for accounts opened in US banks by French, German, British, Italian and Spanish taxpayers.
Financial institutions from the five EU member states will be dispensed from withholding at the source 30% of certain payments to “recalcitrant” account holders or other financial institutions.
The European Commission issued a statement applauding these arrangements: “Thanks to this intergovernmental approach - the only one conceivable for now because it is rapid - to the exchange of tax information, the extra administrative costs, compliance costs and legal impediments (related to data protection) that financial institutions in the EU would have experienced will be considerably reduced”. The financial sector itself has estimated at US$100 million the extra costs for a multinational European bank as a result of implementation of the new legislation.
For the Commission, which opened the debate on FATCA with Washington in April 2011, any EU member state should now be able to adopt this government-to-government approach to information exchange by concluding “coordinated bilateral agreements” with the United States. Washington is considering developing other partnerships with third countries.
Such coordination, notes the EU executive, “could, at a later stage, form the foundation for wider cooperation on information exchange between the EU and the United States,” which would serve the Commission’s interests.
The executive has made the abolition of banking secrecy its hobbyhorse. It notes that cooperation with the United States on FATCA should be very useful in the context of “the EU’s efforts to promote global application of the automatic exchange of information for tax purposes”.
In their joint statement, France, Germany, Italy, the United Kingdom, Spain and the United States also “commit to working with other FATCA partners, the OECD and where appropriate the EU, on adapting FATCA in the medium term to a common model for automatic exchange of information”.
Luxembourg, Austria and Switzerland, already under pressure from the Danish EU Presidency, which has relaunched the debate on savings taxation, are now even more in the hot seat.