FATCA implementation pushed back 12 months

In what will be seen by financial services companies as a welcome move, the IRS has extended the dates for foreign financial institutions (FFIs) and withholding agents to complete due diligence and other requirements under FATCA.

FATCA, which was enacted by the US government in March 2010, was due to come into effect in a phased manner.  Withholding agents would have to have new account opening procedures in place by 1^st January, 2013. FFIs would have to enter an agreement with the IRS to provide information on each account and US account holder by 30^th June, 2013.  Basic account details would need to be reported for 2013 and 2014 with fuller and more detailed reporting for the calendar year 2015.

There has been a widespread outcry about the disproportionate cost of implementing the requirements, with many businesses having to make significant IT system and process changes as a consequence.  Another key source of criticism has been the lack of detail at this late point in the day, which has made it very hard for firms properly to prepare for the new regulations.  Not only is detail lacking from the IRS on important areas of clarification, but many territories are only in the early stages of deciding whether or not to put inter-governmental agreements in place with the IRS for the purposes of reporting. FFIs therefore do not know exactly what they will be required to report, and to whom.

The IRS has finally responded to the barrage of criticism by agreeing to push back by one year the date by which withholding agents, including participating FFIs, will be required to implement new account opening procedures.  The new processes will now have to be in place by 1^st January, 2014.  In addition, additional time will be given to FFIs for reporting details of transactions in the 2013 and 2014 calendar years.

Although these changes do not do anything to allay the key concerns of financial businesses that the cost and difficulty of implementation is disproportionately high, they will nevertheless be welcomed by an industry which has been struggling to get itself sufficiently prepared for the changes.