U.S. extends its tax reach

One in four financial institutions are unaware of impending U.S. tax legislation which will have global reach, according to a report by RBC Dexia Investor Services.

Despite the fact that the U.S.’s Foreign Account Tax Compliance Act (FATCA) was passed in 2010, 26% of financial institutions worldwide have little or no awareness of the legislation.

FATCA is the cornerstone of U.S. tax legislation relating to foreign accounts held by U.S. citizens. The intent of FATCA is to capture all potential tax revenue that is payable on the worldwide income of U.S. persons.

“The message from this report is, with all the FATCA rules and regulations yet to be finalized—including any granted exemptions—financial institutions can only take a measured approach to preparation,” says Jean-Michel Loehr, chief of industry and government relations with RBC Dexia. “The good news is that awareness is gaining traction; the bad news is that the market needs much more clarification before any program can truly be finalized.”

The survey noted that European financial institutions appear to be paying much closer attention, with 86% of respondents confirming strong levels of FATCA awareness. Larger organizations also see this as an area of focus as 81% of respondents with over US$1 billion in assets rated some or significant awareness.

Related articles

• Tax planning and dual citizenship

• Cross-border planning full of conflict

Despite a lack of clarity about the full scope and impact of FATCA, survey participants who are aware of FATCA are preparing for its eventual implementation. A majority, 54% of respondents, classed themselves as moderately to very prepared, while 36% considered themselves moderately prepared. Meanwhile, 21% of overall respondents admitted they were not prepared at all.

Early projections from survey respondents reveal that 85% put the cost of implementing FATCA at US$1 million or less, with the majority (54%) expecting less than US$100,000. Only 5% of respondents are anticipating expenses over US$5 million.