Australia and the US have just signed an agreement that will reduce the burden on Australian financial institutions and is pegged to save hundreds of millions of dollars in compliance costs.
Treasurer Joe Hockey announced that the two countries have entered into an intergovernmental agreement (IGA) that will help Australian financial institutions to comply with the US’ Foreign Account Tax Compliance Act (FACTA).
FATCA is an information-reporting regime that was enacted by the United States in March 2010. It will commence on 1 July 2014 and will affect a large part of the Australian financial services sector, Hockey said.
However the conclusion of this treaty-status IGA will help Australian financial institutions comply with FATCA by reducing the overall burden on Australian business, minimising costs by simplifying due diligence requirements, and broadening arrangements between the Australian Tax Office and the US Internal Revenue Service.
It effectively removes all Australian superannuation funds from the FATCA reporting regime.
The IGA will also improve existing tax information-sharing arrangements between Australia and the United States, for the purpose of preventing tax evasion.
Hockey said this will help to enhance the integrity of both countries’ tax systems.
The Government will introduce legislation to give effect to the IGA as soon as practicable. Public consultation will commence immediately on the draft legislation and its explanatory memorandum.
The Financial Services Council has been quick to welcome the IGA, saying it is a positive outcome following many months of consultation between Australian Treasury and the US Government.
“It is significant for the financial services industry in reducing red tape and will save hundreds of millions of dollars in compliance costs,” CEO John Brogden said.
But he also urged the government to look at mechanisms that will ensure compliance costs are reduced for the OECD’s common reporting standard.
The compliance and cost ramifications of this have far reaching consequences for the financial services industry, he said.
“The potential costs of the OECD model [could] be even more significant than FACTA.”
Professionals' Association of Australia (SPAA) has also given the IGA a thumbs up.
"SPAA made strong representations to the Australian and US Treasury departments to exclude SMSFs from FATCA for the simple reason Australian superannuation funds pose a low risk of tax evasion because they are subject to strict regulation and supervision in Australia, whether it is by APRA or the ATO," said CEO Andrea Slattery. "This means that any SMSFs that have a US citizen as a trustee or member don't have to adhere to the strict FATCA reporting compliance, saving considerably on costs for trustees and their advisors."