Australia: US postpones FATCA withholding regime

The commencement of withholding obligations under the United States Foreign Account Tax Compliance Act (FATCA) has been postponed by six months. This means that the Australian Government now has more time to pass FATCA implementation legislation and Australian financial institutions have more time to prepare their systems for FATCA compliance.

Previously, the withholding commencement date was 1 January 2014. According to a notice recently published by the United States Internal Revenue Service (IRS) (Notice 2013-43), the regime will now commence on 30 June 2014.

FATCA will require the withholding of 30% of certain payments to or from a non-US, 'foreign financial institution' (FFI), if the ultimate recipient of that payment is a US citizen or an entity controlled by a US citizen.

The IRS has also promised to publish an updated list of countries that have entered into FATCA inter-governmental agreements (IGA) with the United States Government. The effect of an IGA is that FFIs domiciled in signatory countries do not need to enter into individual 'FFI agreements' with the IRS. For practical purposes, an FFI Agreement significantly reduces an FFI's FATCA compliance burden.

FFIs in countries whose government has not entered into an IGA would need to enter into individual FFI Agreements with the IRS to afford themselves this compliance relief.

Whilst we understand that the Australian Treasury is in talks with the IRS in respect of a possible Australian IGA, any such agreement is yet to be formally announced. The commencement delay means, if anything, that the Australian Treasury has a further six months to resolve outstanding issues.

In any event, Australian financial institutions should continue working to be FATCA-ready.

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