IRS Issues Foreign Account Tax Compliance Act Regulation
Final regulation adopts World Council recommendations to reduce CU burden
WASHINGTON, D.C. — The U.S. Internal Revenue Service (IRS) on Thursday released final regulations to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). The FATCA regulations target U.S. taxpayers using foreign accounts to avoid paying U.S. income taxes and apply to non-U.S. credit unions in many jurisdictions. The final regulations incorporated key World Council recommendations to reduce regulatory burden on credit unions. The FATCA final rule's "U.S. withholding agents" provisions will also apply to U.S. credit unions that make international payments.
FATCA will require most large or internationally active non-U.S. financial institutions to register with the IRS and monitor their accounts to detect U.S. taxpayers who may be hiding money overseas. The IRS's proposed regulation, however, would likely have also required smaller non-U.S. credit unions to register with the IRS because it only exempted small "banks" as defined by U.S. tax law. World Council explained in its comment letter and testimony to the IRS last year that the requirement would have placed unnecessary and inappropriate burdens on small foreign credit unions.
In the final FATCA regulation, the IRS incorporated World Council's key recommendations: 1) that credit unions and similar credit cooperatives fall within the definition of FATCA-exempt "non-registering local banks" and 2) an amendment to allow non-U.S. credit unions to list U.S. dollar accounts on their websites without losing FATCA-exempt status. Most non-U.S. credit unions with less than US$175 million in assets will fall within the "non-registering local bank" exemption, and most larger non-U.S. credit unions will qualify as partially exempt "deemed compliant" foreign financial institutions.
"The FATCA regulation will have a far-reaching impact on credit unions in many jurisdictions," said Brian Branch, World Council president and CEO. "In today's world, we continue to advocate for reducing regulatory burden so that credit unions can concentrate on serving their members' needs."
The "deemed compliant" partial exemption will apply to non-U.S. credit unions with more than US$175 million in assets that only have offices in their home jurisdiction and have at least 98% of their savings and other deposits held by residents or citizens of the credit union's home jurisdiction. In the final regulation, the 98% calculation was modified to be based on the total value, rather than number, of credit union accounts, and the IRS will also allow non-resident citizens of the credit union's home jurisdiction to be treated the same as local residents. These changes should significantly reduce the number of credit unions required to fully comply with FATCA and make regular reports to the IRS about their members.
The IRS FATCA regulation will not apply to credit unions in jurisdictions that have entered into FATCA intergovernmental agreements (IGAs) with the United States, including Denmark, Ireland, Mexico and the United Kingdom. Other jurisdictions, including Australia, Canada and several Caribbean and South American jurisdictions, are also in discussions with the United States to possibly enter into FATCA IGAs.
FATCA reporting requirements will come into effect in 2015 with full compliance required by 2017. World Council will issue its members a more detailed summary of the IRS final FATCA regulation next week as well as a FATCA compliance guide for institutions subject to the IRS regulation later this year.
Download the final version of the IRS FATCA regulation.
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 56,000 credit unions in 101 countries serve 200 million people. Learn more about World Council's impact around the world at www.woccu.org.
Contact: Rebecca Carpenter
Organization: World Council of Credit Unions