May 3 (Bloomberg) -- The U.S. Treasury Department is pledging two years of light enforcement of new tax rules for overseas banks -- as long as the financial institutions make a good-faith effort to comply.
Banks that are working to get their systems ready to implement the Foreign Account Tax Compliance Act won’t face stiff enforcement and 30 percent withholding taxes until 2016. Those that aren’t trying to comply could face consequences starting on July 1, the Treasury Department said yesterday.
The agency’s notice “outlines several measures to help institutions comply with FATCA in a timely manner,” Robert Stack, the Treasury Department’s deputy assistant secretary for international tax affairs, said in a statement. “This notice will enhance our insight into accounts held overseas by U.S citizens, furthering the goal of narrowing the tax gap and cracking down on tax evasion.”
The announcement is part of an effort by the U.S. government to prepare for the start of FATCA, a law passed by Congress in 2010 designed to prevent U.S. citizens from avoiding taxes by using foreign bank accounts.
Under the law, many payments from the U.S. to other countries are subject to 30 percent withholding. The penalty is waived if the banks provide information about U.S. account holders.
The law has prompted some banks to refuse Americans’ accounts and increased complexity for U.S. citizens living abroad. Deutsche Bank AG told U.S. citizens yesterday that they must close accounts in Belgium.
The Treasury announcement stops short of acceding to industry groups’ requests to delay FATCA’s implementation.
The U.S. has negotiated agreements with more than 50 jurisdictions to allow an exchange of information between governments or between foreign banks and the U.S. government.
Among the countries that have reached agreements are Canada, Germany, France, Australia, Switzerland and the U.K.
Negotiations with other countries are continuing. The U.S. recently stopped FATCA talks with Russia, potentially subjecting cross-border transactions to the 30 percent penalty starting on July 1 if nothing changes.
The Treasury Department announced two other technical changes yesterday. One makes it easier for foreign banks and other companies to set up procedures for cross-border transactions, the other helps foreign banks in jurisdictions with local laws that prevent them from complying.