In an attempt to reduce tax evasion by U.S. citizens living abroad, the U.S. introduced the Foreign Account Tax Compliance Act (FATCA).. .
In an attempt to reduce tax evasion by U.S. citizens living abroad, the U.S. introduced the Foreign Account Tax Compliance Act (FATCA).. This legislation requires ‘Foreign Financial Institutions’ (‘FFIs’) to pass information about their U.S. customers and some U.S.-controlled, non-U.S. entities, to the IRS.
FATCA imposes certain obligations on investment funds, which in most cases, will themselves qualify as FFIs. These include the requirement to register with the IRS, due diligence obligations, and reporting requirements in respect of certain investors. The U.S. regulations impose a 30% withholding tax on certain U.S. sources of income or sales proceeds paid to any FFI which does not comply.
Current status of FATCA in Belgium
In order to support the underlying policy goal of FATCA while addressing perceived conflicts with local laws, the Belgian government signed an Intergovernmental Agreement on 23 April 2014 with the US Treasury (“Agreement between the Government of the Kingdom of Belgium and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA”, hereinafter: the IGA). The IGA however, has no direct effect and has yet to be implemented into the Belgian legal system.
Awaiting the implementation of FATCA into Belgian law, Belgium issued FATCA Draft Guidelines related to the U.S. FATCA regime1 on 20 April 2015. The document provides guidance to the implementation of the IGA. Although it is still “draft guidelines” it is expected that the draft guidelines will not materially differ from the final guidelines.
More than one and a half years after the IGA has been signed, the Belgian government has yet to vote the law enacting FATCA into Belgian domestic law. Without a Belgian FATCA law and clear reporting instructions from the Belgian tax authorities, none of the Belgian Financial Institutions have reported the 2014 FATCA information by June 30, 2015, as set forth in the draft version of Belgian FATCA Guidance Notes.
Recently the office of the Belgian Ministry of Finance has verbally confirmed that the IRS agreed to delay the FATCA reporting deadline. Belgian Financial Institutions now have until the 10th day following the publication of the Belgian FATCA law into the Belgian Official Gazette to report the 2014 FATCA information to the Belgian Tax Authorities. The Belgian FATCA law is expected to be voted on before the end of 2015.
Impact on Belgian Financial Institutions
The Belgian Financial Institutions, except those that are exempt from FATCA reporting, need to urgently prepare their reporting on US Reportable Accounts of 2014 and have everything ready to inform their clients. Please note in this respect that also a nil reporting is required in case there are no accounts to be reported.
“European FATCA” and CRS
Meanwhile, another reporting obligation that is far more wide-reaching than FATCA is about to be introduced.
In the light of the Automatic Exchange of Information (AEOI), the European Council decided that the Global Standard, which is currently being developed within the OECD, will be the method for automatic exchange of information within the EU. A Global Standard, namely the Common Reporting Standards (“CRS”), would leverage on FATCA in order to provide a global standard for automatic exchange of information in tax matters. This resulted in the Amending Directive on Administrative Cooperation (“DAC2”, nick-named “European FATCA”) which was adopted on 9 December 2014 (Council Directive 2014/107/EU) and will be applied on 1 January 2016 with the first exchanges of information in 2017.
Although FATCA and DAC2/CRS are similar in concept, they differ in a number of areas that are sufficient enough to cause significant implementation, cost, and system design issues compared to existing FATCA solutions.
Impact on Belgian Financial Institutions
Although DAC2/CRS still needs to be implemented in Belgium law, Belgian financial institutions should take action as soon as possible in order to meet the 2017 reporting deadline.
1 Published at the e-services webpage of the Belgian tax authoritieshttp://financien.belgium.be/nl/E-services/fatca/faq_en_documentatie