The Financial Services Council (FSC) welcomed the joint announcement by the US Department of the Treasury and the Internal Revenue Service that the commencement of 30 per cent withholding on payments of US source income would be delayed until 1 July 2014.
FSC chief executive John Brogden said the delay would give the industry some “breathing space” while Australian firms implemented the Future of Financial Advice and Stronger Super reforms.
As part of FACTA, foreign financial institutions (FFIs) will be required to report detailed information about financial accounts held by US citizens – and FFIs that do not comply with the legislation will suffer a 30 per cent withholding tax on receipts of ‘withholdable payments’.
The delay is, in part, an acknowledgement of the ongoing negotiations between the United States and more than 80 countries relating to the creation of intergovernmental agreements (IGAs)
Speaking to InvestorDaily, King & Wood Mallesons senior associate Suzanne Gibson said the creation of an IGA would, for the most part, exempt financial institutions from the withholding requirement.
To date, the United States has signed nine IGAs – but the agreement with Australia has still not been signed, with the Australian Treasury continuing its negotiations with US authorities.
But even if an Australian IGA had been signed “in the next few months”, it would have been difficult for the government to put implementing legislation in place before the original 1 January 2014 deadline, said Ms Gibson.
The implementing legislation would have been necessary to get around Australian privacy concerns that would have made getting details about US clients difficult, said Ms Gibson.
The joint announcement by the two US bodies also extended to the grandfathering contained in FATCA, which means that certain arrangements (debt instruments, derivatives transactions and associated collateral) entered into up to 1 July 2014 will not be affected by the FATCA requirements.
The announcement also means that FFIs will no longer be required to report on their US accounts for the 2013 calendar year – instead, the first reporting period will be the 2014 calendar year.
