FATCA stands for the Foreign Account Tax Compliance Act.
FATCA is part of the U.S. HIRE Act, signed into law on March 18th, 2010 by President Obama.
You are on: What is FATCA?
The objective of this legislation is to identify U.S. persons who may evade U.S. taxes by placing assets in foreign (non-U.S.) accounts -- either directly or indirectly through certain foreign entities such as corporations or trusts.
In its original form, FATCA would have required foreign (non-U.S.) financial institutions (FFIs) to either:
To address privacy and regulatory concerns related to FATCA, many countries are negotiating intergovernmental agreements (IGAs) with the U.S. These IGA "partner countries" will enter into one of two standard model agreements, and implement laws to require financial institutions to collect and report information required by FATCA.
FFIs will comply with FATCA in one of three ways:
1) In countries with a Model 1 IGA, FFIs will comply under local legislation and report to their local tax authority; in turn, the local tax authority will exchange information with the Internal Revenue Service (IRS);
2) In countries with a Model 2 IGA, FFIs will comply with local legislation to enter into agreements with, and report directly to, the IRS;
3) In countries without an IGA, FFIs will enter into agreements with, and report directly to the IRS. (A 30% withholding tax will be deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.).
On January 17th, 2013, the U.S. Treasury and Internal Revenue Service released final FATCA regulations. These define the detailed requirements for U.S. financial institutions, and for foreign (non-U.S.) financial institutions that will enter into agreements directly with the IRS. Foreign financial institutions in countries entering into Model 1 IGAs with the U.S. will still require their local governments to release local legislation and guidance before they can fully finalize their requirements. When the final regulations were released, the U.K., Mexico, Denmark, Ireland, Switzerland, Spain and Norway had signed or initialed IGAs. The U.S. Treasury indicated it was engaged with more than 50 countries and jurisdictions globally to complete agreements. Subsequently, Italy, Germany and Japan signed or initialed IGAs in spring 2013 while other countries announced their intentions to enter into agreements.
RBC is carefully analyzing the final regulations and IGAs and moving towards compliance globally starting in July 2014. RBC will continue to update its FATCA information for clients as details are known.
It's anticipated that many major countries around the world will negotiate an IGA with the U.S. by July 2014 - and that most of those agreements will be the Model 1 version.
U.S. financial institutions are automatically required to comply with FATCA.
Virtually every financial institution in the world will be affected by FATCA requirements.
Other international tax compliance efforts: Meanwhile, the global scope of international tax compliance and transparency continues to expand. For example, several major European countries announced in spring 2013 their intent to introduce a FATCA-like agreement for mutual exchange of financial information. Likewise, G-20 leaders called for a coordinated effort to share bank data, while global tax evasion was also on the agenda at the G-8 summit in 2013.
Note: the term U.S. Reportable Account is an account owned by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. owners -- regardless of the currency of the account itself. FATCA applies to all types of financial accounts, including insurance, investments and business accounts.
You are on: RBC's Approach
RBC understands the objectives of FATCA and the U.S. government's concerns about tax evasion.
RBC is working with industry associations, governments and regulators to carefully analyze and make recommendations related to emerging FATCA requirements, and move towards compliance starting in July 2014.
RBC earns the right to be our clients' first choice. We take our clients' privacy seriously and comply with privacy rules in all jurisdictions. We are carefully reviewing FATCA regulations and intergovernmental agreements (IGAs) to minimize the impact of new rules on client service and privacy.
You are on: The Road Ahead
The first phase includes new account opening procedures to identify U.S. Reportable Accounts. These procedures must be in place July 1st, 2014 for all U.S. and non-U.S. financial institutions.
The second phase includes the identification and reporting of certain pre-existing U.S. Reportable Accounts opened prior to July 1st, 2014. This phase is expected to be completed between 2014 and 2016.